After graduating from the University of Lusaka, you have been hired as a Risk Manager of a General Insurance company. You have been assigned to provide an assurance that the reserves accounting is free from error and complies with accounting standards. Upon inquiry of the Director of Finance you discover that the company has an accounting policy that complies with accounting Standards. This includes the statement that the Insurers liabilities include required reserves. Both premiums and claims transactions contribute to these reserves. Claim incurred expenses recognized in the profit and loss will consist of claims paid plus increase or minus decrease in estimated claim reserves. Premiums written are adjusted by the increase or decrease in the provision for unexpired premium period. Further inquiry leads you to discovering that fully processed claims are Claims reported and adjusted and approved by claims underwriters for payment. Claims fully processed and approved for payment are considered paid from an underwriting point of view. However, in the accounts department the claims outstanding relates to approved claim requisitions received from claims department for payment. From accounting schedules you ascertain that at the end of the year, the accounting department had unpaid claims amounting to K 2, 000.00, while K 5,000.00 was paid but included in this payment was K 400.00 being claims reported, adjusted and paid relating to fully processed claims for the previous year. Meanwhile, in the claims underwriting department, the monthly report for the final month of the accounting period shows that the claims that were waiting for claims to be settled amounted to K 1,200.00 of which claims amounting to K 700.00 had not been agreed with loss adjusters and clients. The Claims Manager had included a contingent amount of expected loss not brought to the attention of the Insurer amounting to K 1, 050.00. You are told that underwriting expenses include the cost of adjusting claims, paying the insured losses that occurred, commissions to agents and reserves for unearned premium which stood at K3, 000.00 at the beginning of the year and was revised to K 3. 700.00 as at the end of the current financial year. Other schedules prepared by the Management accountant reveals the following: Written premiums were 15% higher than Earned Premiums. Earned premiums (are those premiums for which the service for which the premiums were paid (insurance protection) has been rendered was K10, 000.00 Expenses including underwriting costs are; i. the cost of adjusting claims, K 1,300.00 ii. paying the insured losses that occurred (see above) iii. commissions to agents K 2,000.00 iv. premium taxes K 1,400.00 v. general insurance expenses K 2,300.00 Required: A. State the three (3) components that make up the claim loss reserve. (An estimated amount that is calculated and reported as reserves). [3 MARKS] B. Define the term The incurred-but-not-reported (IBNR) reserve. [2 MARKS] C. Calculate the underwriting expenses. [10 MARKS] D. How much is the Underwriting profit? Prepare an extract that would appear in the financial statements. [5 MARKS] E. Calculate the loss ratio. [1 MARKS] F. Calculate the expense ratio. [1 MARKS] G. Calculate the combined ratio. [1 MARKS] H. What is the investment income ratio based on figures given above. [1 MARKS] I. What is overall operating ratio? [1 MARKS] [TOTAL: 25 MARKS]