Question #10
Reading: Reading 11 Analysis of Financial Institutions
PDF File: Reading 11 Analysis of Financial Institutions.pdf
Page: 4
Status: Correct
Correct Answer: A
Question
When analyzing insurance companies, the combined ratio is most likely to:
Answer Choices:
A. equal net premiums earned divided by total insurance expenses
B. indicate an underwriting loss when it is higher than 100%
C. suggest a soft market when it is low
Explanation
An underwriting loss is indicated by a combined ratio higher than 100% for a single
insurance company. Low prices for premiums leads to a high combined ratio, indicating a
soft market. The combined ratio equals the total insurance expenses divided by the net
premiums earned.