View Full Version : Minimum Loss Ratio req.
What is the purpose of them?
Is it to make sure the company does not charge exorbitant rates, or is it to make sure the company does not charge insufficient rates?
Dr T Non-Fan
04-03-2002, 03:19 PM
The first one.
The second one is handled through Maximum allowable loss ratios.
OK, thanks so much..... one more question:
What does "Permissible Loss Ratio" mean? Minimum or maximum?
04-03-2002, 05:00 PM
that stuff sounds like course 5 casualty......i tried to forget it ASAP the next day after i took the exam (passed)
04-05-2002, 09:33 AM
Basically, a minimum loss ratio is so that benefits stay proportional to premium. These exist in Medicare supplement products, as well as others probably. It would be hard for the government to come in and say you can only charge $XXX for this product. It is easier to say that the insurance company has to pay out a certain percent of the premium as benefits. This way if there is more expected benefit payout involved, a higher premium is allowed.
04-05-2002, 02:06 PM
Permissible Loss ratio:
Same thing as the target loss ratio.
Calculated by taking 1 - expenses + expected investment income (which may or may not be included).
Expected loss ratio/permissible loss ratio - 1 = indicated rate change
blah blah blah
What does target loss ratio mean? Minimum or Maximum?
Group insurers have higher permissible loss ratios than Individual insurers. Does this mean their maximum allowable loss ratios are higher, or that their minimum allowable loss ratios are higher?
04-09-2002, 09:44 AM
The premiums should be adequate, but not excessive. This implies that the loss ratio should not be too high (inadequate prem) but not too low (excessive premium). In practice, I think cos often use only one loss ratio, based on expenses (including profit/addition to surplus) and investment income. Individual has a lower target loss ratio than group because the the claims experience is less predictable, so you need additional surplus or profit to offset the additional underwriting risk.
That was a great answer. Thank you so much!
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