Question

At year end, Omicron Insurance Company (OIC) posted these results: Premiums written $10,000,000 Premiums earned 9,500,000 Underwriting expenses incurred 4,000,000 Loss and loss adjustment expenses incurred 5,700,000 Based on this information, which one of the following represents OIC's trade basis combined ratio?

1) 90.00%
2) 94.74%
3) 105.26%
4) 110.00%

Answer 1

The trade basis combined ratio for OIC is 90.00%.

The correct answer is option 1) 90.00%.

Step-by-step explanation:

The trade basis combined ratio can be calculated by dividing the sum of underwriting expenses and loss and loss adjustment expenses by the premiums earned. In this case, the underwriting expenses incurred were $4,000,000 and the loss and loss adjustment expenses incurred were $5,700,000.

The premiums earned were $9,500,000. So, the trade basis combined ratio is ($4,000,000 + $5,700,000) / $9,500,000 = 0.894737.

Multiplying this by 100 gives us 89.47%.

Therefore, the correct answer is option 1) 90.00%.