When reviewing a rating unit's operating performance, which ratio indicates whether an insurer has made an underwriting loss or gain?

When reviewing a rating unit's operating performance, which ratio indicates whether an insurer has made an underwriting loss or gain?

• A. Combined Ratio
• B. Return on Equity
• C. Current Ratio
• D. Debt Ratio

Answer: (A)

Underwriting profitability is determined by how much of the earned premium is eaten up by claims and underwriting expenses. The combined ratio captures this by adding the loss ratio (claims paid and incurred) to the expense ratio (underwriting expenses). If the combined ratio is below 100%, the insurer is underwriting profitably (an underwriting gain); if it’s above 100%, it’s incurring an underwriting loss. This ratio isolates underwriting performance and excludes investment income, which is why it’s the best indicator of underwriting gain or loss. In contrast, return on equity reflects overall profitability including investments, while current ratio and debt ratio assess liquidity and financial leverage, not underwriting results.

Underwriting profitability is determined by how much of the earned premium is eaten up by claims and underwriting expenses. The combined ratio captures this by adding the loss ratio (claims paid and incurred) to the expense ratio (underwriting expenses). If the combined ratio is below 100%, the insurer is underwriting profitably (an underwriting gain); if it’s above 100%, it’s incurring an underwriting loss. This ratio isolates underwriting performance and excludes investment income, which is why it’s the best indicator of underwriting gain or loss. In contrast, return on equity reflects overall profitability including investments, while current ratio and debt ratio assess liquidity and financial leverage, not underwriting results.