Page 23 - PUBLIC BANK & AIA INSURANCE COMPANY

2. Loss Ratio
Loss ratio is a measure of the actual risk coverage per unit of premiums that the insurer has

already earned. The amount of a company’s net premiums that were allocated to underwriting
cost, such as salaries, commissions to brokers and agents, state, benefits and other operational
expenses. This ratio is determined by dividing the net claim insured by net premiums earned. It

is the measure of an insurer’s business efficiency to investor; the loss ratio is a reflection on the
nature of risk underwritten and the adequacy or inadequacy of pricing of risks. The loss ratio

shows what percentages of pay-outs are being settled with recipients. Based on the calculated
table ratio, shows that the loss ratio for the year 2018, where the Sun Life Insurance Company is
lower which is 49.14% compared to AIA Insurance Company that is 81.53%. Meaning that, Sun

Life Insurance Company is better that AIA Insurance Company. The suggestion for AIA Insurance.
Company for improvement and lower the ratio is that the company may need better risk

management policies to guard against future possible insurance pay-out and to become more
efficient insurance company.

• Combined Ratio

Combined ratio is the addition of loss ratio and expense ratio, which shows in together how an
efficient insurance company is to select the policy as well as control the underwriting expense.
The lower the ratio the better efficiency it indicates. A ratio below 100 % represents a measure of

profitability and the efficiency of an insurance firms underwriting efficiency. Ratios above 100 %
denote a failure to earn sufficient premiums to cover expected claims in insurance company.

Besides that, based on the above calculated table ratio shows that the combined ratio for the year
2018, where the Sun Life Insurance Company is below 100% that is 82.39% compared to AIA
Insurance Company that is 101.92%. Unfortunately, it shows that the AIA Insurance company fail

to earn sufficient premium to cover expected claim because the ratio above 100%. The suggestion
for AIA Insurance Company for improvement is that the investors should generally stick to
investing in low-cost and disciplined insurers to avoid failure in the company.

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