Which of the following statements about the combined ratio is true?
A)It is equal to the loss ratio minus the expense ratio.
B)A combined ratio greater than 1 (or 100 percent)means an underwriting loss has occurred.
C)The combined ratio considers the company's investment income.
D)A combined ratio less than 1 (or 100 percent)indicates an underwriting loss has occurred.

Question

Quizplus · Accepted Answer

The combined ratio is the sum of the loss ratio (claims paid divided by premiums earned) and the expense ratio (underwriting expenses divided by premiums written). A combined ratio greater than 1 (or 100 percent) indicates that the company paid out more in claims and expenses than it earned in premiums, resulting in an underwriting loss. Therefore, option B is the correct statement. Option A is incorrect because the loss ratio is part of the combined ratio, not a component that can be subtracted. Option C is incorrect because the combined ratio only looks at underwriting and expense metrics, not investment income. Option D is incorrect for the same reason as option A.

Which of the Following Statements About the Combined Ratio Is