SOFA-CFE · Question #365
A combined ratio under 100 percent reflects an underwriting profit, with a combined ratio above 100 percent reflecting an underwriting loss.
The correct answer is A. True. Option A is correct because the combined ratio measures an insurer's underwriting profitability by adding the loss ratio and expense ratio - when this total falls below 100%, the insurer is paying out less in claims and expenses than it collects in premiums, resulting in an…
Question
A combined ratio under 100 percent reflects an underwriting profit, with a combined ratio above 100 percent reflecting an underwriting loss.
Options
- ATrue
- BFalse
How the community answered
(38 responses)- A71% (27)
- B29% (11)
Explanation
Option A is correct because the combined ratio measures an insurer's underwriting profitability by adding the loss ratio and expense ratio - when this total falls below 100%, the insurer is paying out less in claims and expenses than it collects in premiums, resulting in an underwriting profit. Conversely, a combined ratio above 100% means the insurer is paying out more than it takes in, producing an underwriting loss. Option B is incorrect because it would reverse this relationship, which contradicts the standard definition used across the insurance industry.
Memory tip: Think of the combined ratio like a spending percentage - if you spend less than 100 cents of every dollar earned (under 100%), you're profitable; if you spend more (over 100%), you're losing money.
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