Describe How the Combined Ratio on a P&C Insurance Line

question 42

Essay

Describe how the combined ratio on a P&C insurance line is calculated. At what point does the combined ratio indicate that underwriting was profitable? If the line was profitable, how can the insurance firm still make money on the line now and in the future?

---

Definitions:

Investing Activities

Transactions involving the purchase and sale of long-term assets and other investments not considered cash equivalents.

Financing Activities

Operations that lead to modifications in the magnitude and structure of an entity's equity capital or debt.

Accrued Expenses

Expenses that have been incurred but not yet paid for or recorded through a formal payment, reflecting in the financial statements through adjusting entries.

Prepaid Insurance

Expenses paid in advance for insurance coverage, which is recognized as an asset until the period the insurance benefits are used up.