Combined ratio in a set of accounts

When you are creating ratios for accounts to analyse, is it better to make the expense ratio and loss ratio consistent so that you'll have a combined "ratio". Is it okay to do every thing on an earned premium basis? i know in a tutorial, it was said that you could create ratios in any way, once you interpreted them correctly, but the notes do say, that expenses are incurred in written premiums, so it's best to stick with Expenses/written premiums.

so is it really okay to still say expenses incurred (paid and o/s)/earned premiums for this combined ratio?

thanks

 

Yes/No/Maybe.

I think you can do what you like as long as you make it clear. I think they even say in the notes, or core reading, somewhere the ratio isn't perfect because sometimes they have different denominators.

But accounts aren't my strongest area so maybe someone else can confirm.

Although, I think they take a simplified view in the notes/exam.

I just looked at some accounts (very sad but I hate when something doesn't sit right) and they always have the same denominator.

It works like this for accident year account:

The loss ratio is of course incurred claims divided by earned premium

then for the expenses it is

net operating expenses divided by earned premium

where net operatng expenses is defined as:

Acquisition costs
+Change in deferred acquisition costs
+Administrative expenses
+Reinsurers’ commissions and profit participations
+Loss on exchange

So I guess this is the incurred expenses bit.

For underwriting year accounts we would just not need the change in dac bit and also I guess no administrative expenses other than those incurred for that underwriting year.

Of course part of this is also the unallocated loss adjustment expenses on the claims too, but this is needed for accident years also.

 

Fiend, you are a whizz - are you sitting this exam on Thursday? I think i'm more scared now that someone with your knowledge is doing the same sitting as I am - dont make the pass mark too high!

Again, thanks for all your help though!

 

I am honestly no whizz.... I am way too lazy to be anywhere near good!

I think I have some kind of motivation problem. I just don't want to sit down and learn bookwork or do exam papers. It is evil!