Group Case Study:

Sarah is senior vice president of finance and chief actuary for Al Sagr Insurance Company. Salem is majoring in finance at University of Sharjah. Salem applied for an internship with Al Sagr Insurance Company, and he is working for the company during the summer before the start of his senior year of college. Curious to learn what Salem knew about insurance company financial statements and ratemaking, Sarah prepared a quiz for Salem to take on his first day on the job. See if you can help Salem answer these questions.

Questions:

1. At year-end last year, Al Sagr had total liabilities of $640 million and total assets of $900 million. What was the companys policyholders surplus?

2. Explain how it is possible for Al Sagr to have $500 million in written premiums last year and $505 million in earned premiums last year.

3. Al Sagrs net underwriting result last year was a $540,000 loss. Explain how it is possible that Al Sagr did a net profit.

4. Al Sagr provides collision coverage for one year on 50,000 autos. During the one-year period, the company expects to pay $10 million in incurred losses and loss-adjustment expenses for these 50,000 autos. Based on this information, what is the pure premium?

5. The pure premium per unit of personal liability insurance for one group of prospective purchasers is $300. If Al Sagr wants to allow for a 40 percent expense ratio for this line of coverage, what gross rate per unit of coverage should be charged?