Alberta General Insurance Level 1 Practice Exam

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Ace your Alberta General Insurance Level 1 Exam with our comprehensive practice quiz. Tailored to mimic the real test, our quiz offers detailed explanations, expert tips, and all you need to succeed. Start your path to becoming a licensed professional today!

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How is the Combined Ratio calculated?

Sum of Loss and Expense ratios
Difference between Loss and Expense ratios
Multiplication of Loss and Expense ratios
Division of Loss and Expense ratios

The correct answer is: Sum of Loss and Expense ratios

The Combined Ratio is calculated by summing the Loss Ratio and Expense Ratio. The Loss Ratio represents the ratio of incurred losses to earned premiums, while the Expense Ratio represents the ratio of underwriting expenses to earned premiums. By adding these two ratios together, the Combined Ratio gives insurers an overall view of how their underwriting operations are performing. The other options, such as subtracting (B), multiplying (C), or dividing (D) the two ratios, would not give an accurate representation of the overall performance of the underwriting operations. With multiplication (C) or division (D), the result would be much larger than the actual combined ratio, and with subtraction (B), the result would be negative, which is not possible for a ratio.