The ABC Insurance Company is having the following financial performance this year: Premiums $ 650...
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The ABC Insurance Company is having the following financial performance this year: Premiums $ 650 Claims 470 Loss Adjustment Expenses 60 Underwriting Expenses 115 Underwriting Gain $ 5.00 Expectations for Next Year: Required Capital 1/3 rd of Premiums Growth in Claims Frequency 3.00% Severity 2.00% Claims Timing: Paid out evenly over 18 months (that is, use an n of .75) Growth in Loss Adjustment Expenses (LAE) Frequency 2.50% Severity 2.00% LAE Timing: Same as Claims Growth in Underwriting Expenses: 2.25% Underwriting Expense Timing: Same as Claims Investment Return: 3.50% Required Return on Capital: 7.00% (Note: Return is reduced by a charge for change in required capital) Given the above, determine which premium, $672.16 or $718.86, best meets the firms objectives. Show all of your work and calculations for full credit
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