An insurance line has a pure loss ratio of 65 percent,LAE of 16 percent and an expense ratio of 26 percent; the firm pays 3 percent of premiums to policyholders as dividends and has an investment yield to premium ratio of 6 percent. Which one of the following statements is true?

Question

Quizplus · Accepted Answer

The operating ratio is the sum of the pure loss ratio, LAE ratio, and expense ratio. In this case, the operating ratio is 65% + 16% + 26% = 107%, indicating that the line is not profitable. The combined ratio after dividends is not relevant in determining profitability, as dividends are paid to policyholders and do not affect the insurer's profit or loss.

An Insurance Line Has a Pure Loss Ratio of 65