If the loss ratio on a line of property insurance is 75 percent, the loss adjustment...

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?

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Expert Solution

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)

jeff jeffy answered 1 year ago

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