Problem 15-13 (LG 15-6) A property–casualty insurer brings in $6.35million in pr
ID: 2801547 • Letter: P
Question
Problem 15-13 (LG 15-6)
A property–casualty insurer brings in $6.35million in premiums on its homeowners MP line of insurance. The line’s losses amount to $4,476,750, expenses are $1,682,750, and dividends are $222,250. The insurer earns $285,750 in the investment of its premiums. Calculate the line’s loss ratio, expense ratio, dividend ratio, combined ratio (after dividends), investment ratio, operating ratio, and overall profitability. (Do not round intermediate calculations. Round your answers to 1 decimal place. (e.g., 32.1))
A property–casualty insurer brings in $6.35million in premiums on its homeowners MP line of insurance. The line’s losses amount to $4,476,750, expenses are $1,682,750, and dividends are $222,250. The insurer earns $285,750 in the investment of its premiums. Calculate the line’s loss ratio, expense ratio, dividend ratio, combined ratio (after dividends), investment ratio, operating ratio, and overall profitability. (Do not round intermediate calculations. Round your answers to 1 decimal place. (e.g., 32.1))
Explanation / Answer
Loss ratio = loss amount/total premium = 4,476,750/6,350,000 = 70.5%
Expense ratio = Expenses/total premium = 1,682,750/6,350,000 = 26.5%
Dividend Ratio = Dividends/Total premium = 222,250/6,350,000 = 3.5%
Combined ratio = Loss ratio + Expense Ratio + Dividend Ratio = 100.5%
Investment Ratio = earning from investment/total premium = 285750/6350000 = 4.5%
Operating ratio = Combined ratio - investment ratio = 100.5% - 4.5% = 96%
Overall profitability = 100% - operationg ratio = 100% - 96% = 4%