Which formula represents the Operating Ratio?

The Operating Ratio is a key measure in assessing the efficiency of an insurance company's operations by comparing its operating expenses to its net earned premiums. It is an important indicator in the insurance industry that helps in understanding how well a company is managing its underwriting expenses relative to the premiums it receives.

The correct formula for the Operating Ratio can be derived by understanding that it typically encompasses the costs associated with underwriting, including claims, expenses, and dividends, as they relate to premiums written. The formula mentioned in the correct response outlines an effective breakdown of these components, which is crucial for determining the effectiveness of operations in generating profit.

By expressing the Operating Ratio as the combined ratio of payouts, expenses, and dividends divided by net earned premiums, it provides a comprehensive evaluation of the total cost involved with earning the premiums—a more holistic view than merely looking at dividends or investments in isolation.

Using this insight, you can see why the other options do not accurately represent the Operating Ratio. While the first option suggests a combined ratio but lacks necessary components, the second option introduces a subformulation which still aligns with the broader definition of efficiency but is not comprehensive enough. The remaining options do not articulate the full relation between operating costs and premiums as effectively as the correct choice does. Understanding this