General Insurance PrinciplesQuestion 198 of 474
An insurer earns $10,000,000 of premium in a year and incurs $7,500,000 of losses on that business. Its loss ratio is:
a.25%
b.133%
c.75%
d.7.5%
Explanation
The loss ratio is incurred losses divided by earned premium: $7,500,000 divided by $10,000,000 gives 75%. Turning the fraction upside down produces 133%, which would describe an insurer paying out far more than it collected. The loss ratio ignores underwriting expenses, so it is the expense ratio added to it that produces the combined ratio.
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