Chapter 3

Question 1

The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy

Answer 1

Loss Adjustment Expense (LAE)

Question 2

Assets meeting minimum standards of liquidity that an insurer is allowed to report on its balance sheet in accordance with statutory accounting principles. (i.e., cash, bonds, stocks, mortgages, real estate, computer equipment, and premium balances due in less than 90 days)

Answer 2

Admitted Assets

Question 3

Types of property, such as office furniture and equipment, that regulators do not allow insurers to show as assets on financial statements because these assets cannot readily be converted to cash at or near their market value

Answer 3

Nonadmitted Assets

Question 4

Incurred Losses (inculding LAE) / Earned Premiums

Answer 4

Loss Ratio

Question 5

Incurred Underwriting Expenses / Written Premiums

Answer 5

Expense Ratio

Question 6

Loss Ratio + Expense Ratio

Answer 6

Combined Ratio

Question 7

Net investment income / Earned Premiums

Answer 7

Investment Income Ratio

Question 8

Combined Ratio - Investment Income Ratio

Answer 8

Overall Operating Ratio