AbCo Insurance enters into a reinsurance contract with two reinsurance companies: Apple Re and Northern Re. The three companies work together to insure a cargo ship valued at $250 million. The insurance limits are as follows:
AbCo - $75 million
Apple Re - $125 million
Northern Re - $50 million
bCo Insurance holds total assets of $800 million and recognizes liabilities of $550 million.
1. According to the Kenney Ratio, what is the maximum amount of insurance AbCo can safely sell? Assume some mixture (the mixture doesn’t matter) of property and liability insurance is being sold.
2. AbCo writes $150 million in premiums in 2012. In 2012, AbCo pays $117 million for losses and for loss expenses. In 2012, AbCo pays $31.5 million in underwriting/administrative expenses. What is AbCo’s loss ratio, expense ratio, and combined ratio? Can you make any statements about AbCo’s profitability?