Question

An insurance line has a pure loss ratio of 65 percent, LAE of 16 percent and an expense ratio of 26 percent; the firm pays 3 percent of premiums to policyholders as dividends and has an investment yield to premium ratio of 6 percent. Which one of the following statements is true?

a) The line is profitable because the operating ratio is greater than 100.
b) The line is profitable because the operating ratio is less than 100.
c) The line is not profitable because the operating ratio is greater than 100.
d) The line is profitable because the combined ratio after dividends is greater than 100.
e) The line is profitable because the combined ratio after dividends is less than 100.

Answer 1

Step-by-step explanation:

Therefore, the correct answer is (c) The line is not profitable because the operating ratio is greater than 100.