Final answer:
True, an insurer can be profitable even with a combined ratio over 100 percent due to the investment income earned, balancing out underwriting losses.
Step-by-step explanation:
The statement that an insurer can be profitable even if the combined ratio is over 100 percent is true. A combined ratio over 100 percent indicates that a company's underwriting expenses and payouts for claims are more than the premiums it earns. However, insurance companies typically invest the premiums they collect, and the investment income can be substantial enough to offset underwriting losses, leading to overall profitability. Therefore, the combined ratio is just one aspect of an insurer's financial health, and must be considered alongside other revenues like those from investments.
It's important to note that insurers aim to manage their risks and seek to ensure that, generally, the premiums collected cover the claims, the administrative costs, and contribute to the firm's profits. However, the underwriting aspect is only part of the picture - profits can also come from other financial activities like those from investments.