An insurance company collected $3.6 million in premiums and disbursed $2.06 mill

Question

An insurance company collected $3.6 million in premiums and disbursed $2.06 million in losses. Loss adjustment expenses amounted to 7.6 percent and dividends paid to policyholders totaled 1.2 percent. The total income generated from their investments was $270,000 after all expenses were paid. What is the net profitability in dollars?

An insurance company collected $3.6 million in premiums and disbursed $2.06 million in losses. Loss adjustment expenses amounted to 7.6 percent and dividends paid to policyholders totaled 1.2 percent. The total income generated from their investments was $270,000 after all expenses were paid. What is the net profitability in dollars?

Explanation / Answer

Pure loss = $3.6 million - $2.06 million = $1.54 million, or $1,540,000.

Expenses = 0.076 x $3,600,000 = $273,600.    

Dividends = 0.012 x $3,600,000 = $43,200.  

Investment returns = $270,000.

Net profits =$3,600,000-$1,540,000-$273,600-$43,200-$270,000

Net profit = $1,473,200.

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