ii$.$ A summary of the financial statements for the last two years $($prepared on an accident year basis$)$ for

an insurer specialising in crop insurance is shown below.

It is also revealed that outstanding claims reserves at $\frac{31}{12}\frac{?}{2018}$ were:

Calculated on a discounted basis, having been calculated on an undiscounted basis in prior years $-$

this led to a $6\%$ decrease in claims reserves; and

Increased by $10\%$ to allow for estimated crop damages resulting from a severe storm on the $9$ th

January $2019.$

Explain whether the calculation of outstanding claims reserves at $\frac{31}{12}\frac{?}{2018}$ by the insurer complies with

the relevant accounting concepts. $[2]$

iii. Restate the P&L Account for $2018$ and Balance Sheet at $31/12/2018$ assuming the above adjustments

to outstanding claims reserves had not been made. Assume investment income and dividends remain

unchanged and a tax rate on profits of $20\%.[4]$

iv$.$ Calculate the following ratios for the last two years, using the restated financials:

a$.$ Claims ratio;

b$.$ Expense ratio;

c$.$ Return on capital employed; and

d$.$ Solvency ratio. $[4]$

v$.$ Comment on the trends by referring to the ratios in part $($i and any others you calculate. $[3]$