Question

In: Finance

a) If an insurer had a combined ratio of 1.00 and their expenses were .30 what are the losses?

a) If an insurer had a combined ratio of 1.00 and their expenses were .30 what are the losses?

b) If an insurer had a combined ratio of .90 would they want to increase premiums, lower premiums or keep them the same? Explain why. Is this insurer in healthy financial shape or do they have work to do?

c) If an insurer had a combined ratio of 1.10 and their losses were .75 what are their expenses?

d) If an insurer had a combined ratio of 1.05 but wanted to get it lower and not raise premiums would cutting expenses help? Yes or no and explain why.


Solutions

Expert Solution

ANSWER -

a) Combined ratio = (Claim related losses + Business expenses) / Premiums earned

Combined ratio = 1.00, expenses = 0.30.
= 100- 0.30
= 0.70
Losses are = 0.70
b) As the combined ratio represents outflows for an insurer, a ratio less than 1 implies profitability from underwriting. Given a combined ratio of 0.90, the insurer is in healthy financial shape and does not need to increase premiums. Since the ratio is close to 1, they would not want to lower premiums either. Hence, premiums would be kept the same
c) Combined ratio = 1.10, losses = 0.75

=  1.10 - 0.75
= 0.35
Losses are = 0.35

d)Increase the denominator or decreasing the numerator of a ratio would reduce the overall ratio. Since the insurer does not want to raise premiums (denominator), it can lower the combined ratio by reducing either expenses or / and losses (numerator).

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

A, B and C are partners sharing profits and losses in the ratio of 60%,30% and...
A, B and C are partners sharing profits and losses in the ratio of 60%,30% and 10%. They decided to liquidate their business. The balance Sheet on the date of liquidation was as follows: Cash 20,000 Receivables 40,000 Other current assets 20,000 Machinery 80,000 Equipments 50,000 Land and building 300,000 Liabilities 150,000 Capital Account balances: A 200,000 B 124,000 C 36,000 C had become insolvent and was unable to pay towards any of his partnership debts. The assets and liabilities...
Last year, ABC insurance company had a combined ratio of 101.7 and lost $7.8 million on...
Last year, ABC insurance company had a combined ratio of 101.7 and lost $7.8 million on it’s insurance products. The company still had to pay income taxes that year. The best explanation for this potential contradiction is A. Investment income B. Increased unearned premium C. Increased LAE D. Increased loss reserves
Togbi and Mama were partners sharing profits and losses in the ratio 2:1 respectively. The following...
Togbi and Mama were partners sharing profits and losses in the ratio 2:1 respectively. The following trial balance was extracted from their books on 31st December, 2004 Details GH¢ GH¢ Capital Accounts: Togbi 14,000                                Mama 7,000 Drawings Accounts: Togbi 3,400                                    Mama 2,200 Current Accounts: Togbi 700                               Mama 500 Office equipment at cost 1,144 Stock in trade (1/1/2004) 10,000 Trade Debtors and creditors 8,100 6,175 Purchases and sales 76,000 102,000 Freehold property 9,250 Wages and salaries 12,727 Rates...
a) How is the combined ratio of a property and casualty insurance company calculated, and what does the combines ratio measure?
a) How is the combined ratio of a property and casualty insurance company calculated, and what does the combines ratio measure?b )How is it possible for a property and casualty insurance company to be profitable if its combined ratio exceeds one (or 100%)?
As of November 30, 2017 Ms. B had $12,000 capital losses and no capital gains. She...
As of November 30, 2017 Ms. B had $12,000 capital losses and no capital gains. She owns 4,903 shares of GG stock with a $15 basis and a $45 FMV per share. Mrs. B plans to hold her stock for three more years before selling it and using the proceeds to buy a home. However, she could easily sell 400 shares to trigger a $12,000 capital gain and then immediately repurchase them. If Ms. B’s marginal income tax rate is...
what problems has Disney had with currency exposures losses?
what problems has Disney had with currency exposures losses?
Builtrite had sales of $700,000 and COGS of $280,000. In addition, operating expenses were calculated at...
Builtrite had sales of $700,000 and COGS of $280,000. In addition, operating expenses were calculated at 25% of sales. Builtrite also received dividends of $50,000 and paid out common stock dividends of $25,000 to its stockholders. A long-term capital gain of $70,000 was realized during the year along with a capital loss of $50,000 Based on the above information, answer the following 4 questions: 1.What is Builtrite’s taxable income? 2. Based on their taxable income, what is Builtrite’s tax liability?...
Builtrite had sales of $700,000 and COGS of $280,000. In addition, operating expenses were calculated at...
Builtrite had sales of $700,000 and COGS of $280,000. In addition, operating expenses were calculated at 25% of sales. Builtrite also received dividends of $50,000 and paid out common stock dividends of $25,000 to its stockholders. A long-term capital gain of $70,000 was realized during the year along with a capital loss of $50,000. 1. What is Builtrite’s taxable income? 2. Based on their taxable income, what is Builtrite’s tax liability? 3. If we add to our problem that Builtrite...
what is the reason for following restricted expenses: 1) any costs borne or losses incurred during...
what is the reason for following restricted expenses: 1) any costs borne or losses incurred during that tax year where the costs were recovered , or the losses were compensated under a contract, insurance policy, court judgment or other. 2)Any amounts considered by the SGT not to be reasonable by reference to the value of the services rendered or other considerations relating to such services. 3) loss from the disposal of securities listed in Muscat Securities Market.
What were the three main styles combined in early soul music? And why was this combination...
What were the three main styles combined in early soul music? And why was this combination controversial?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT