Question

Carolyn is senior vice president of finance and chief actuary

PART TWO / The Private Insurance Industry The the resc tios А CASE APPLICATION Carolyn is senior vice president of finance and chief actu ary for Rock Solid Insurance Company (RSIC). Lonnie 3 3. Rock Solid's net underwriting result last year was . Rock Solid's net is double-majoring in finance and mathematics at State $540,000 loss. Explain how it is possible that Rock University. Lonnie applied for an internship with Rock Solid was required to pay income taxes. Solid, and he is working for the company during the 4. Rock Solid provides collision coverage for one summer before the start of his senior year of college. year on 50,000 autos located in a specific territory Curious to learn what Lonnie knew about insurance within the state. During the one-year period, the company expects to pay $10 million in incurred company financial statements and ratemaking, Carolyn losses and loss-adjustment expenses for these prepared a quiz for Lonnie to take on his first day on the 50,000 autos. Based on this information, what is job. See if you can help Lonnie answer these questions. the pure premium? 1. At year-end last year, Rock Solid had total liabili 5. The pure premium per unit of personal ties of $640 million and total assets of $900 million. liability insurance for one group of prospective What was the company's policyholders' surplus? purchasers is $300. If Rock Solid wants to allow 2. Explain how it is possible for Rock Solid to have for a 40 percent expense ratio for this line of $500 million in written premiums last year and coverage, what gross rate per unit of coverage should be charged? $505 million in earned premiums last year. 5 UMMARY o nosuzibil A balance sheet summarizes what a company owns assets), what it owes (liabilities), and the difference expenses are loss payments, loss-adjustment expenses, and other expenses including commissions, premium taxes, and general insurance company expenses. To determine an insurer's net income, total expenses are

Answer 1

Solution :-

ID Policy holder's sur plus - Total Assets - Total liabilities - $900 million - $ 640 million. = $360 @) As per accounting rules, premiums. can only be termed as earned" after the time period for which the premium was collected has passed. Rock solid may have written more insurance coverage in the prior year than in this year. So, in this year, the premiums earned may more than the premiums written by Rock solid.

Lonnie must remember that insurers have two major sources of income. The first is underwriting income and the second is investment income. Though, Rock solid's under - -writing results were not profitable, company earned investment income to offset the underwriting loss. The company was required to pay taxes on this gain.

Pure Premium Expected Payment in incurred losses Number of autos $ 10,000,000 5oooo - $200 Pure premium per unit = $300 Expense ratio = 40% of 0.40 Now, Gross rate – Pure Premium per unit per whit I expense ratio $300 10.40 $300 0.60 - $500