Alberta General Insurance Level 1 Practice Exam

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What does the Expense Ratio represent?

  1. The ratio of earned premiums to insurer's profits

  2. The ratio of acquisition costs and other expenses to earned premiums

  3. The sum of incurred claims and expenses

  4. The difference between earned premiums and expenses

The correct answer is: The ratio of acquisition costs and other expenses to earned premiums

The Expense Ratio represents the ratio of acquisition costs and other expenses to earned premiums. This means that it is the percentage of an insurer's expenses in relation to the premiums earned. Option A is incorrect because it mentions the insurer's profits, which may not necessarily be included in the expense ratio. Option C is incorrect because it only considers claims and expenses, not acquisition costs. Option D is incorrect because it only considers the difference between premiums and expenses, but not the expenses themselves.

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