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Answer: The Expense Ratio of 30.0% includes loss adjustment expenses
The **false** statement is **A**. - The **loss ratio** includes losses and usually **loss adjustment expenses**. - The **expense ratio** includes underwriting expenses such as **marketing expenses, commissions, administrative costs, and premium taxes**. - A **combined ratio above 100%** means underwriting is unprofitable, so **C** is true. - A **75% loss ratio** means about **$0.75 of each premium dollar** goes to claims-related costs, so **D** is true. Therefore, the only false statement is that the expense ratio includes loss adjustment expenses.
Author: Manit Arora
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Q-703.1. In its annual report, Acehouse Property-Casualty presents a summary of selected key ratios (but where we've hidden four of the values):
| Acehouse Property-Casualty (APC) | |
|---|---|
| An Insurance Company | |
| X(D), X(C), X(I), X(O) represents hidden values |
| Ratio | Value |
|---|---|
| Loss ratio | 75.0% |
| Expense ratio | 30.0% |
| Combined ratio (before dividends) | 105.0% |
| Dividends | X(D) |
| Combined ratio (after dividends) | X(C) |
| Investment income | X(I) |
| Operating ratio | X(O) |
Each of the following statements it true EXCEPT which is false?
A
The Expense Ratio of 30.0% includes loss adjustment expenses
B
The Expense Ratio of 30.0% includes marketing expenses and commissions paid to brokers
C
Because its combined ratio is greater than 100.0%, Acehouse is NOT a profitable business
D
For each $1.00 in premiums received, Acehouse pays out (and/or reserves for payouts) about $0.75 in claims to its customers
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