Explanation

The combined ratio is a key metric in insurance that measures the overall efficiency of an insurer's operations. It is calculated as:

Combined Ratio = Loss Ratio + Expense Ratio

Where:

• Loss Ratio = Loss Expense and Loss Adjustment Expense / Net Premiums Earned
• Expense Ratio = Underwriting Expense / Net Premiums Written

Step-by-step calculation:

1. Calculate Loss Ratio: Loss Ratio = 12,000 / 15,000 = 0.80 or 80%

2. Calculate Expense Ratio: Expense Ratio = 4,000 / 10,000 = 0.40 or 40%

3. Calculate Combined Ratio: Combined Ratio = 80% + 40% = 120%

Interpretation:

• A combined ratio of 120% indicates that the insurer is paying out $1.20 in claims and expenses for every $1.00 of premium collected
• This means the insurer is operating at a loss on its underwriting activities
• The insurer would need investment income or other sources of revenue to be profitable

Therefore, the correct answer is C. 120%.