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Combined Ratios & Practice Problems Video Lecture | Quantitative Aptitude (Quant) - CAT
FAQs on Combined Ratios & Practice Problems Video Lecture - Quantitative Aptitude (Quant) - CAT
| 1. What is a combined ratio in insurance? |  |
Ans. A combined ratio in insurance is a measure used to assess an insurance company's overall profitability by combining its loss ratio and expense ratio. It is calculated by adding the company's loss ratio and expense ratio together.
| 2. How is the combined ratio calculated? | |
Ans. The combined ratio is calculated by adding the loss ratio (incurred losses divided by earned premiums) and the expense ratio (underwriting expenses divided by written premiums) together. The result is a percentage that reflects the company's overall profitability.
| 3. What does a combined ratio below 100% indicate? | |
Ans. A combined ratio below 100% indicates that an insurance company is making an underwriting profit. This means that the company is collecting more in premiums than it is paying out in losses and expenses, which is a positive sign for its financial health.
| 4. What does a combined ratio above 100% mean for an insurance company? | |
Ans. A combined ratio above 100% means that an insurance company is operating at a loss from underwriting. This indicates that the company is paying out more in losses and expenses than it is collecting in premiums, which can be a cause for concern in terms of profitability.
| 5. How do insurance companies use combined ratios to make business decisions? | |
Ans. Insurance companies use combined ratios as a key metric to evaluate their underwriting performance and overall profitability. By analyzing trends in combined ratios over time, companies can identify areas for improvement, adjust pricing strategies, and make informed decisions to enhance their financial performance.
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