An insurance company’s projected loss ratio is 78.2 percent, and its loss adjust

Question

An insurance company’s projected loss ratio is 78.2 percent, and its loss adjustment expense ratio is 13.6 percent. It estimates that commission payments and dividends to policyholders will add another 16 percent. What is the minimum yield on investments required in order to maintain a positive operating ratio? (Round your answer to 2 decimal places. (e.g., 32.16))

An insurance company’s projected loss ratio is 78.2 percent, and its loss adjustment expense ratio is 13.6 percent. It estimates that commission payments and dividends to policyholders will add another 16 percent. What is the minimum yield on investments required in order to maintain a positive operating ratio? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Answer: The combined ratio = 78.2% + 13.6% + 16.0% = 107.80%.

In order to be profitable, the yield on investments has to be greater than 7.80%.

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