Rita and Roger Stanton have been married for fifteen years. They have two childr

ID: 407485 • Letter: R

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Rita and Roger Stanton have been married for fifteen years. They have two children, Ronald, 12, and Rhonda, 8. They have a four-year-old Labrador mix dog named Ruff. Rita is an administrative assistant for a large law office in the city. Roger is the principal at the local high school. He drives about four miles to and from work each day. He is also a full partner in a seasonal white water rafting business (Rowdy Rafters) with his brother Eddie. They are the only two full-time employees. Rowdy Rafters employs one part-time bookkeeper, Edna. Throughout the summer, Roger and Eddie take turns guiding rafting trips down a nearby river. With Rita’s legal background, she has always worried that a passenger might drown while on a guided raft tour but Roger loves his work so much she has decided not to ask him to give it up. Rowdy Rafters carries a $500 deductible on their property insurance policy that protect their property (rafts, equipment, building, and office contents) and $1,000,000 in general liability coverage. The rafting company conducts trips for individuals and groups, with a majority of their business coming from local schools and youth organizations, drawing participants between the ages of 6 and 18. Recently Roger has begun offering overnight rafting trips which include meals and one or more nights of camping by the river. This new offering seems to be very popular with families. Unfortunately Roger's business has had a few "incidents". The losses sustained and submitted include: · Theft of several rafts and equipment amounting to $15,500 in claim payment · Wind damage to their building requiring the replacement of the roof for a $25,275 claim payment · A liability claim in which they were found negligent for improper operation of a raft which resulted in bodily injury to several passengers was just settled for $750,000 in judgment payment · Roger has just been informed that one of the people that went on a recent rafting trip has filed suit against Rowdy Rafters alleging that Roger’s improper guidance of the raft caused it to strike a large rock, capsizing the craft. The claimant states that she broke her arm as a direct result of the capsizing and has also sustained “significant mental anguish” due to the ordeal. She is seeking damages in the amount of $500,000.

Due to the fact that Roger's insurance carrier will be making coverage and rate changes, Roger has begun researching replacement insurance companies just to keep his options open. But he wants to make sure that the new company is financial stable. He has obtained financial data from several carriers and is beginning his analysis. Roger is unsure how to go about beginning his financial analysis of several insurance companies he is considering and has asked for your input. Using your knowledge gained from information in our textbook, help Roger answer the following:

5) Tamarado Insurance Company, a commercial property, liability, and workers compensation insurer, ended the past year with a combined ratio of 107% and an overall operating ratio of 88%. Help Roger to answer the following questions about Tamarado Insurance Company's profitability.

a. What do these ratios indicate about the insurance companies profitability for that year?

b. Suggest to actions that the insurance company might take to improve its profitability for the coming year.

6) All of the companies Roger is considering have list "policyholder surplus" on their financial statements. Roger wants to know if “policyholder surplus” means that this is extra money to be divided among customers who have a policy with that particular company. Explain what this is and why it is an important measure of the insurer’s financial well-being.

7) Overlan Insurance Company writes a high volume of business insurance throughout the United States. Because Overlan specializes in business insurance, it offers a lower premium than any other business insurer. Overlan is reviewing its loss ratio, expense ratio, and combined ratio to find ways to improve its combined ratio of 106%. The combined ratio was calculated using these figures:

combined ratio = loss ratio + expense ratio

106% = 68% + 38%

Evaluate whether each of these proposals, in absence of other proposals, could significantly improve Overlan's combined ratio, and explain your answer.

a. Overlan will offer a 10% rate decrease for all of its new and existing policyholders.

b. Overlan will implement a new cost-effective system that enables prospective insurers to submit an online application for insurance. The system evaluates the risk and provides a quote to be insured in two minutes or less. The system also enables insurers to accept the quote, renew their policy online, make online premium payments, and submit most policy changes to Overlan online.

8) Juniquote Insurance set a goal to improve its loss ratio by 15% over the next year. Analyze the following proposals and determine whether each would be likely to improve Juniquote's loss ratio.

a. Juniquote will offer loss control services for its commercial insurance that exceed the services offered by its competitors.

b. Juniquote will discontinue writing business insurance in two states that have the highest licensing fees (of those states where they write business insurance) and strict requirements for wording that must be used in business policy provisions and all policy related communications.

Explanation / Answer

a. What do these ratios indicate about the insurance companies profitability for that year?

Ans- It shows that company may find it difficult to get profitable in the coming year.

b. Suggest to actions that the insurance company might take to improve its profitability for the coming year.

Ans- the company can go for re-insurance to increase its profitabulity.

Ans- Policyholder surplus is one indicator of an insurance company's financial health. It gives an insurance company another source of funds, in addition to its reserves and reinsurance, if it needs to pay a higher than expected amount of claims.

combined ratio = loss ratio + expense ratio

106% = 68% + 38%

Evaluate whether each of these proposals, in absence of other proposals, could significantly improve Overlan's combined ratio, and explain your answer.

a. Overlan will offer a 10% rate decrease for all of its new and existing policyholders.

Answer- a is best option

8) Juniquote Insurance set a goal to improve its loss ratio by 15% over the next year. Analyze the following proposals and determine whether each would be likely to improve Juniquote's loss ratio.

a. Juniquote will offer loss control services for its commercial insurance that exceed the services offered by its competitors.

Answer- b is best option.

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Rita and Roger Stanton have been married for fifteen years. They have two childr

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