What is the equation for GWP:PHS and its normal range?

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Multiple Choice

What is the equation for GWP:PHS and its normal range?

The main idea is to compare premium volume to the available capital buffer, using a ratio of GWP to PHS. GWP represents the annual gross written premiums, while PHS stands for policyholders’ surplus (the insurer’s capital and reserves). The standard way to express this relationship is by dividing GWP by PHS, giving a dimensionless ratio. When you report it as a percentage, you multiply by 100. So the equation is GWP divided by PHS, and the normal range is expressed as a percentage and is less than 900%. This means GWP should be under nine times the policyholders’ surplus (i.e., GWP/PHS < 9, or < 900%). Using multiplication, subtraction, or reversing the numerator/denominator would not reflect the intended relationship between premiums and the insurer’s capital cushion, which is why those forms aren’t appropriate.

The main idea is to compare premium volume to the available capital buffer, using a ratio of GWP to PHS. GWP represents the annual gross written premiums, while PHS stands for policyholders’ surplus (the insurer’s capital and reserves). The standard way to express this relationship is by dividing GWP by PHS, giving a dimensionless ratio. When you report it as a percentage, you multiply by 100.

So the equation is GWP divided by PHS, and the normal range is expressed as a percentage and is less than 900%. This means GWP should be under nine times the policyholders’ surplus (i.e., GWP/PHS < 9, or < 900%).

Using multiplication, subtraction, or reversing the numerator/denominator would not reflect the intended relationship between premiums and the insurer’s capital cushion, which is why those forms aren’t appropriate.

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