Alberta General Insurance Level 1 Practice Exam

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What ratio might concern a regulator under the measuring capacity guidelines?

  1. 2-1 net premiums to equity

  2. 3-1 net premiums to equity

  3. 4-1 net premiums to equity

  4. 1-1 net premiums to equity

The correct answer is: 3-1 net premiums to equity

A 2-1 ratio would indicate a relatively stable and balanced level of premiums compared to equity. A 3-1 ratio could be acceptable, but may raise some concern about the company's ability to sustain its financial resources. A 4-1 or higher ratio would be an indication of potentially risky levels of premiums in relation to equity. Therefore, the correct answer, B, falls within a range that would be acceptable but may still warrant monitoring from a regulator perspective. Option A and D are too low, and option C is too high, therefore they would not be ideal ratios according to the measuring capacity guidelines.

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