An insurance company's projected loss ratio is 64

Finance Nov 11, 2020

An insurance company's projected loss ratio is 64.8 percent and its expense ratio is 25.6 percent. The company estimates that dividends to policyholders will be 6 percent. What must be the minimum yield on investments to achieve a positive operating ratio?

Expert Solution

Combined ratio= Loss ratio+ Loss adjustment expenses+ Other expenses

Here,

Loss ratio= 64.8%

Loss adjustment expenses= 25.6%

Other expenses= 6%

Put the values in the formula;

= 64.8%+ 25.6%+ 6%

= 96.4%

Operating ratio is positive already because the combined ratio is lower than 100%.

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