R.M. Ch. 7

Question 1

Financial Statements of Property and Casualty Insurers

Answer 1

Balance Sheet

Question 2

Balance Sheet

Answer 2

a summary of what a company owns (assets) and what it owes (liabilities)

Total Assets = Total Liabilities + Owners’ Equity (Surplus; Capital)

Question 3

Financial Statements of Property and Casualty Insurers

Answer 3

• Primary assets are financial assets

* Primary liabilities are loss reserves

Question 4

Income and Expense Statement

Answer 4

summarizes revenues and expenses paid over a specified period of time

Question 5

Income and Expense Statement

Answer 5

• The principal sources of insurer revenue are (1) premiums and (2) investment income
• Expenses include incurred losses, cost of adjusting claims, commissions to agents, premium taxes, and other expenses

Question 6

Measuring the Performance of Property and Casualty Insurers (Key Terminology)

Answer 6

o	Incurred Losses
o	Loss Adjustment Expenses
o	Underwriting Expenses
o	Premiums
o	Net Investment Income

How can we use the above items to measure an insurer’s performance?

Question 7

Loss Ratio

Answer 7

is the ratio of incurred losses and loss adjustment expenses to premiums earned

Question 8

Expense Ratio

Answer 8

is equal to the company’s underwriting expenses divided by written premiums

Question 9

Combined Ratio

Answer 9

is the sum of the loss ratio and the expense ratio. A ratio > 1 indicates an underwriting loss

Question 10

Investment Income Ratio

Answer 10

compares net investment income to earned premiums

Question 11

Overall Operating Ratio

Answer 11

is equal to the combined ratio minus the investment income ratio

Question 12

Overall Operating Ratio

Answer 12

• OOR = LR + ER - IIR

This ratio measures the company’s overall performance