An increase in underwriting or other expense ratio may suggest which of the following?

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Multiple Choice

An increase in underwriting or other expense ratio may suggest which of the following?

The key idea is that the underwriting expense ratio shows what portion of the premium is consumed by underwriting-related costs. If that ratio rises, more of each premium dollar goes to expenses, leaving less available to pay losses. That directly corresponds to the statement that less of the premium can be used toward paying losses. This is why the option describing a smaller share of premium available for losses is the best fit. The other ideas don’t align with the effect of a rising expense ratio: concessions on commissions would typically reflect changes in commissions rather than overall expense share, improved loss reserve accuracy doesn’t inherently raise expenses, and tightly controlled operating expenses would actually lower the expense ratio.

The key idea is that the underwriting expense ratio shows what portion of the premium is consumed by underwriting-related costs. If that ratio rises, more of each premium dollar goes to expenses, leaving less available to pay losses. That directly corresponds to the statement that less of the premium can be used toward paying losses.

This is why the option describing a smaller share of premium available for losses is the best fit. The other ideas don’t align with the effect of a rising expense ratio: concessions on commissions would typically reflect changes in commissions rather than overall expense share, improved loss reserve accuracy doesn’t inherently raise expenses, and tightly controlled operating expenses would actually lower the expense ratio.

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