A P/C insurance company has loss expenses of $6 million, operating expenses of $5 million, total premiums earned of $10 million, and total premiums written of $12 million. The firm has an average investment yield of 6%. What is the firm's combined ratio and appropriate overall profitability ratio?

Question

Quizplus · Accepted Answer

Loss Ratio = Loss Expenses / Total Premiums Earned = $6 mil./$10 mil. = .60 or 60% 
Expense Ratio = Operating Expenses / Total Premiums Written = $5 mil./$12 mil. = .42 or 42% 
Combined Ratio = Loss Ratio % + Expense Ratio % = 60% + 42% = 102% 
Overall Profitability Ratio = 100% - Combined Ratio + Investment Yield 
= 100% - 102% + 6% = 4%

A P/C Insurance Company Has Loss Expenses of $6 Million