Midlands Insurance has 100 policyholders. It expects that this year's losses for all of its policyholders will total $111,000. The predicted expenses of operating the insurance pool are $46,000, expected investment earnings are $20,000, and the actuary determines that there is no need to charge for a risk reserve this year. What should the premium for each of Midland's 100 policyholders be?
A) $1,110
B) $1,370
C) $1,570
D) $1,770

Question

Quizplus · Accepted Answer

The premium needed to cover the expected losses and expenses is:

$111,000 + $46,000 - $20,000 = $137,000

Divide this by the number of policyholders:

$137,000 / 100 = $1,370

Therefore, the premium for each of Midland's 100 policyholders should be $1,370.

Midlands Insurance Has 100 Policyholders