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In: Finance

a. If the loss ratio on a line of property insurance is 73percent, the loss...

a. If the loss ratio on a line of property insurance is 73 percent, the loss adjustment expense is 14.0 percent, and the ratio of commissions and other acquisitions expenses is 18 percent, is this line profitable? b. How does your answer to part (a) change if investment yields of 7 percent are added?

Solutions

Expert Solution

Firstly calculate the combined ratio:

putting the values:

Combined ratio exceed the 100% which means this line is not profitable.

If investment yield is 7%

Operating Profit = Combined ratio - Investment yield

Operating Profit = 105% - 7%

Operating Profit = 98%

Now, this line is profitable.

jeff jeffy answered 2 years ago
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