Final answer:
An insurance company's loss ratio compares losses and premiums; it reflects the relationship between claims paid and the income from premiums, which affects profitability and operational efficiency. The correct answer is option: (d) Losses and premiums.
Step-by-step explanation:
An insurance company's loss ratio for a given period compares the amount of losses paid out in claims plus adjustment expenses, known as money out, to the premiums earned, which is essentially the money in. The correct answer to what two things an insurance company's loss ratio for a given period compares is (d) losses and premiums.
This ratio is a key performance indicator in the insurance industry as it provides a measure of profitability and efficiency. A lower ratio can indicate a more profitable insurance operation, whereas a higher ratio may suggest that the company is paying out almost as much, or more, in claims than it is taking in from premiums.
Factors like investment income, administrative costs, and risk across groups do affect an insurance company's overall financial picture, as well. However, over time, the fundamental law of insurance dictates that the aggregate premiums must cover the collective claims, operating costs, and allow for profits of the firm.