FIG (Banks & Insurance)
Define the loss ratio, expense ratio, and combined ratio. An insurer has $650M of incurred losses, $300M of underwriting expenses, and $1B of earned premium — is it making an underwriting profit?
Model answer
Loss ratio = incurred losses (including loss adjustment expenses) / earned premium = 650/1,000 = 65%. Expense ratio = underwriting expenses / premium = 300/1,000 = 30%. Combined ratio = 65% + 30% =…
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