This section is based on information about an insurance company, known as Horizon Insurance Corporation, hereafter HIC.
Based on the information provided about HIC, answer the questions below.
Here is the information about HIC.
A)HIC’s reported valuation of its finances as of January 1, 2010
Loss Reserves, $170,000,000
Unearned Premiums, $125,000,000
Loss adjustment expenses, $25,000,000
Commission payable, $11,000,000
Common Stock, $ 115,000,000
Commercial buildings, $ 30,000,000
Cash and money market investments $18,000,000
Mortgage relates securities, $40,000,000
Office equipment, $3,000,000
Premiums receivable, $35,000,000
1.Construct a balance sheet and calculate the amount of policyholders’ surplus for HIC.
2.Suppose that the paid-in-capital is 10 percent of the total surplus, calculate the unassigned portion of the total surplus.
B) HIC reported another set of financial information for the following period:
January 1, 2009 – December 31, 2010.
Premiums written, $180,000,000
Premiums Earned, $185,000,000
Interest income $12,000,000
Rental income, $400,000
Capital gain from securities, $800,000
Net losses incurred, $115,000,000
Loss adjustment expenses, $10,000,000
Commissions, $12, 000,000
General expenses, $35, 000,000
1.Construct an Income Statement for HIC and describe the main components of the income statement.
2.Evaluate the performance of HIC using the combined ratio and the overall operating ratio.
3.Suppose that HIC insured 100,000 homes in one of the provinces it operates. The company expects to pay $20,000,000 in incurred losses and loss-adjustment expenses to these 100,000 homes. Determine for HIC’s home insurance (a) the pure premium (b) the gross rate per unit of coverage
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