Question

If the loss ratio on a line of property insurance is 75 percent, the loss adjustment expense is 14.2 percent, and the ratio of commissions and other acquisitions expenses is 16 percent, is this line profitable?

Answer 1

Profitability could be determined with the following steps:

Step.1) the aggregate of loss ratio, loss expense, and other expenses should be done.

Step.2) if such aggregate is above 100%, then there is a loss.

Step.3) if such aggregate is below 100%, then there is a profit.

Now, the sum is computed as below:

Aggregate = Loss ratio + Loss expense + Other expenses

                              = 75% + 14.2% + 16%

                              = 105.2%

Since the aggregate is more than 100%, the line is not profitable. (Answer)