The NAIC's threshold for an acceptable change in net premiums written ratio is what percent?

The NAIC's threshold for an acceptable change in net premiums written ratio is what percent?

• A. 10%
• B. 33%
• C. 50%
• D. 5%

Answer: (B)

The main concept is that regulators allow a substantial but bounded amount of fluctuation in the net premiums written ratio from year to year. The NAIC regards a 33% change as the acceptable limit for this ratio. In practice, if a company’s net premiums written ratio shifts by up to 33% from one period to the next, that change is typically viewed as within normal variability due to things like rate changes, mix of business, or catastrophe experience. A change beyond 33% would draw supervisory attention and prompt explanation or closer review because it could indicate unusual underwriting risk, aggressive growth, or other significant shifts. The other percentages are either too small to account for ordinary industry fluctuations or too large to be considered routine.

The main concept is that regulators allow a substantial but bounded amount of fluctuation in the net premiums written ratio from year to year. The NAIC regards a 33% change as the acceptable limit for this ratio. In practice, if a company’s net premiums written ratio shifts by up to 33% from one period to the next, that change is typically viewed as within normal variability due to things like rate changes, mix of business, or catastrophe experience. A change beyond 33% would draw supervisory attention and prompt explanation or closer review because it could indicate unusual underwriting risk, aggressive growth, or other significant shifts. The other percentages are either too small to account for ordinary industry fluctuations or too large to be considered routine.