CMA Final · Cost and Management Audit · Audit of Different Service Organisations
In auditing an insurance company as a service organisation from a cost and management audit perspective, which ratio is a standard measure of underwriting efficiency in general insurance?
The combined ratio, which is the sum of the claims ratio and the expense ratio, is the standard measure of underwriting efficiency in general insurance. A figure below 100 percent indicates underwriting profit, while the other ratios do not reflect underwriting performance.
- ACombined ratio, being claims ratio plus expense ratioCorrect
- BCurrent ratio, being current assets to current liabilities
- CDebt equity ratio
- DInventory turnover ratio
Explanation
Combined ratio adds the claims (loss) ratio and the expense ratio. A value below 100% indicates an underwriting profit. The other ratios do not measure underwriting performance in an insurer.
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