CAS Exam 5 Spring 2017, Question 4
Study guide: Exam 5
Given the following information for an insurance company:
| ($000) | |
|---|---|
| Written Premium | 15,000 |
| Earned Premium | 12,000 |
| Ultimate Losses and LAE | 10,000 |
| Commissions and Brokerage | 2,250 |
| Other Acquisition Costs | 750 |
| Taxes, Licenses, and Fees | 300 |
| General Expenses | 360 |
- All expenses are variable.
- Underwriting profit provision = -5%.
Part a (1 point)
Calculate the following expense ratios to premium and briefly justify the selection of the premium basis used in each calculation:
i. Commissions and brokerage ii. General expenses
Part b (0.5 points)
Calculate the permissible loss and LAE ratio.
Part c (0.25 points)
Briefly explain how the company may return a profit with an underwriting profit provision less than 0%.
Part d (0.5 points)
Demonstrate whether or not the company met underwriting profit expectations.
Answer this question and see the worked solution
Concepts tested
- Expense Provisions
- Expense Ratio
- Permissible Loss Ratio
- Underwriting Profit
- Variable Expenses
- Written Premium