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CS Professional · Banking and Insurance - Laws and Practice · Functions in Insurance and Compliance related thereto (Part I)

A general insurer's underwriting team is reviewing its motor portfolio. It collected Rs 50 crore of premium and incurred claims of Rs 38 crore, with commission and operating expenses of Rs 16 crore. What is the combined ratio and what does it indicate about underwriting?

The combined ratio is 108 percent, indicating an underwriting loss. Claims of Rs 38 crore give a 76 percent loss ratio and expenses of Rs 16 crore give 32 percent. Together they exceed premium by 8 percent, so the portfolio loses Rs 4 crore before investment income.

  1. A76 percent, an underwriting profit of 24 percent
  2. B108 percent, an underwriting lossCorrect
  3. C32 percent, an underwriting profit
  4. D54 percent, an underwriting loss

Explanation

Loss ratio is 38/50 = 76 percent and expense ratio is 16/50 = 32 percent. Combined ratio is 76 + 32 = 108 percent, above 100, so there is an underwriting loss of 8 percent of premium (Rs 4 crore). Option 76 percent ignores expenses, a missed adjustment.

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