Financial Management, Reinsurance and Performance

Introduction and context

Financial management in health insurance is the disciplined coordination of pricing, reserving, claims payment, provider contracting, investment, capital, liquidity and risk transfer. Unlike many lines of general insurance, health insurance involves frequent claims, uncertain medical inflation, changing treatment patterns, regulatory intervention and close interaction with public policy. Financial performance must therefore be assessed not only through accounting profit, but also through adequacy of capital, sustainability of coverage, quality of care and protection of policyholders.

A health insurer may report a profit while suffering from weak liquidity, inadequate reserves or underpricing. Conversely, an insurer may report a temporary accounting loss while investing in a profitable portfolio or strengthening reserves prudently. Sound management requires a connected view of the income statement, balance sheet, cash-flow statement, actuarial estimates, risk appetite and strategic objectives.

This chapter examines the principal measures of performance, the use of reinsurance and other risk-transfer arrangements, capital and solvency management, budgeting, portfolio analysis and stress testing.

Learning objectives

By the end of this chapter, the reader should be able to:

1. Interpret loss ratios, combined ratios, medical cost ratios, persistency and profitability measures.
2. Distinguish accounting profit from economic value, solvency and liquidity.
3. Construct and interpret a health-insurance cash-flow view.
4. Explain proportional and non-proportional reinsurance and assess their strategic use.
5. Prepare a financial performance dashboard and a risk-based budget.
6. Evaluate capital adequacy, concentration and portfolio performance.
7. Design stress scenarios and interpret their implications for management action.
8. Recognise governance, regulatory, ethical and data-quality requirements.

1. The financial architecture of a health insurer

The financial cycle begins with premium or contribution income. The insurer then incurs acquisition expenses, administration costs, provider payments, claims-handling costs, reinsurance premiums and taxes. Unpaid claims generate technical provisions, while excess funds may be invested. Capital absorbs adverse deviations from expected experience.

A simplified economic relationship is:

This identity is an analytical simplification. In statutory accounts, the exact presentation depends on the jurisdiction and accounting framework. Premiums may be earned over the coverage period rather than recognised when cash is received; claims may include movements in outstanding provisions; and investment gains may be presented separately.

The main financial tensions are:

• Affordability versus adequacy: low premiums support access but may be insufficient to fund expected claims and expenses.
• Growth versus control: rapid enrolment can increase scale but attract adverse selection and operational strain.
• Liquidity versus return: liquid assets support claims payments, whereas longer-term assets may produce higher returns but create market and duration risk.
• Risk retention versus risk transfer: retaining risk preserves premium and may reduce reinsurance cost, but increases capital volatility.
• Efficiency versus quality: cost reduction that damages clinical quality can produce later complications, dissatisfaction and regulatory action.

2. Premium, claims and expense measurement

2.1 Earned premium

Written premium is the amount contractually recorded during a period. Earned premium is the portion relating to coverage provided during that period. For a simple annual policy written evenly through the year, earned premium is approximately the opening unearned premium plus current written premium less closing unearned premium.

The relationship assumes that the insurer recognises premium over the period of risk and that premium adjustments, cancellations and refunds are appropriately included.

2.2 Incurred claims

Claims paid are cash payments made during the period. Incurred claims include claims paid and the change in the estimated liability for unpaid claims:

The equation assumes that recoveries, salvage, subrogation and reinsurance are treated consistently. In health insurance, outstanding claims commonly include reported claims not yet paid and incurred-but-not-reported claims (IBNR).

2.3 Loss ratio

The loss ratio measures the proportion of earned premium consumed by claims:

A loss ratio of 78% means that 78 currency units of incurred claims arise for every 100 currency units of earned premium. The ratio is meaningful only when the numerator and denominator have the same basis—for example, both gross or both net of reinsurance, and both measured on a consistent accounting basis.

A high loss ratio may reflect inadequate pricing, adverse selection, medical inflation, poor provider control or favourable access to care that increases utilisation. A low ratio is not automatically evidence of good management; it may indicate delayed claims recognition, excessive exclusions, underinsurance or poor member access.

2.4 Expense ratio and combined ratio

The expense ratio is usually defined as operating or underwriting expenses divided by earned premium. Its precise scope should be disclosed because acquisition costs, claims administration and overhead may be classified differently.

The combined ratio is:

A combined ratio below 100% indicates an underwriting surplus before investment income and certain other items. A ratio above 100% indicates an underwriting loss. For example, if incurred claims are 78 million, earned premium is 100 million and underwriting expenses are 17 million:

• Loss ratio = 78 ÷ 100 × 100 = 78%.
• Expense ratio = 17 ÷ 100 × 100 = 17%.
• Combined ratio = 78% + 17% = 95%.

The underwriting margin is approximately 5 million, or 5% of earned premium, before other items. The calculation assumes that all amounts are measured on the same gross or net basis.

2.5 Medical cost ratio

In managed care, the medical cost ratio (MCR) generally expresses medical claims or medical benefit expense as a proportion of premium or revenue:

The numerator may include provider claims, pharmacy benefits, clinical services and quality-related medical expenditure, depending on the reporting standard. Administrative costs, profit and taxes are normally excluded. Because definitions vary, comparisons should be made only after reconciling scope, risk adjustment, rebates, reinsurance and accounting treatment.

The MCR is useful for assessing whether premium is being directed toward healthcare benefits, but it is not a complete measure of value. A lower MCR could result from efficient care management or from restricted access. Quality indicators, outcomes, complaints, avoidable admissions and equity measures should be reviewed alongside it.

3. Membership, persistency and portfolio quality

Financial results depend on who remains insured, not merely on the number enrolled at a particular date. Persistency measures the continuation of policies or members over time. A simple annual persistency measure is:

The denominator must be defined carefully. New business should generally not be counted as retained business, and deaths, employer exits or plan migrations may require separate treatment.

A related measure is lapse or attrition rate:

If 8,500 of 10,000 eligible members remain after normalising for permitted movements, persistency is 85%. Persistency is not automatically favourable. Healthy members may leave because of price increases, while high-cost members remain. This creates adverse selection and may raise future loss ratios.

Portfolio analysis should segment members by age, geography, product, employer group, morbidity, provider use, channel and renewal status. Useful indicators include average premium per member, claims per member, utilisation frequency, average claim severity, risk-adjusted margin and concentration by major account.

4. Profitability: accounting, economic and risk-adjusted views

4.1 Underwriting and operating profit

Underwriting profit excludes investment income and focuses on insurance operations. Operating profit may include investment income, service income and other operating items. Net profit additionally reflects financing costs, taxes, exceptional items and accounting adjustments.

A useful decomposition is:

However, reported profit can be affected by reserve releases, unrealised investment gains, changes in discount rates and one-off events. Management should therefore examine current-year underwriting performance separately from prior-year development and non-recurring effects.

4.2 Return on equity and return on assets

Average equity or assets are normally calculated as the mean of opening and closing balances, although more refined averages may be needed for rapidly growing insurers. ROE is affected by leverage and capital structure; ROA is less sensitive to leverage but may be affected by asset classification and investment valuation.

4.3 Economic value and risk-adjusted performance

A sound insurer evaluates profit relative to the capital required to support risk. A simplified risk-adjusted return on capital is:

Economic capital is the capital required, at a chosen confidence level and time horizon, to absorb unexpected loss while maintaining a defined solvency objective. RAROC is not comparable across firms unless confidence levels, horizons, diversification assumptions and profit definitions are aligned.

5. Cash flow and liquidity management

Profit is not cash. Premium may be receivable rather than collected, while claims may be paid before the related premium is received. Liquidity management ensures that the insurer can pay providers, employees, reinsurers, taxes and policyholder refunds when due.

A direct cash-flow structure includes:

• cash collected from premiums and contributions;
• cash paid for claims and provider settlements;
• commissions, salaries, administration and taxes;
• reinsurance premiums and recoveries;
• investment purchases, maturities and income;
• financing and capital transactions.

An operating cash-flow approximation is:

The equation is a management approximation and should be reconciled to the statutory cash-flow statement. It excludes investing and financing cash flows.

Liquidity risk may arise from catastrophic outbreaks, provider payment disputes, delayed premium collection, collateral calls, rating deterioration or sudden member withdrawals. A liquidity dashboard should include days of claims cash, near-term expected outflows, highly liquid assets, receivables ageing, payment concentration and stressed cash coverage.

Cash-flow forecasting should use at least monthly projections and, for stressed periods, weekly or daily projections. Forecasts should distinguish committed payments from discretionary expenditure and should model timing uncertainty rather than only expected amounts.

6. Reserving and capital adequacy

Reserves represent liabilities for services already covered or incurred but not yet fully paid. Important health-insurance provisions include unearned premium, reported outstanding claims, IBNR, premium deficiency or loss provisions, provider incentive adjustments and refund or rebate liabilities where applicable.

A reserve estimate is not a cash balance. It is an estimate of future obligations, and it contains parameter, process and model risk. Claims triangles, completion factors, exposure-based methods, frequency–severity models and case estimates may be used, depending on data and product design.

Capital serves several functions:

1. absorbing unexpected adverse claims and market outcomes;
2. supporting growth and investment in systems;
3. protecting policyholders and creditors;
4. maintaining confidence among regulators, providers and intermediaries.

A simplified solvency ratio is:

Eligible own funds and the solvency capital requirement are defined by the applicable regulatory regime. The ratio should not be interpreted as universally safe merely because it exceeds 100%; internal buffers, supervisory intervention levels, stress results and risk appetite also matter.

Capital planning links expected growth, dividends, reinsurance, asset allocation and potential shocks. A board should approve a target capital range, an early-warning threshold and management actions for deterioration.

7. Reinsurance and alternative risk transfer

Reinsurance is an arrangement under which a reinsurer accepts part of an insurer’s risk in return for consideration. It can reduce volatility, protect capital, support capacity and provide technical expertise. It does not eliminate risk: the insurer normally remains responsible to the policyholder, and the reinsurer may default or dispute claims.

7.1 Proportional reinsurance

Under quota-share reinsurance, the reinsurer accepts a fixed percentage of each policy’s premium and claims. If the quota-share percentage is q, then, in a simplified form:

The same percentage generally applies to premium, subject to commissions and contract terms. Quota share is useful for new portfolios, capital relief and sharing broad portfolio uncertainty, but it may transfer profitable business unnecessarily.

Under surplus arrangements, the reinsurer participates above a retention according to a stated number of lines. These arrangements are more common where sums insured vary materially, although health policies may require adaptation because exposure is often based on annual benefit limits or aggregate costs.

7.2 Non-proportional reinsurance

Excess-of-loss cover responds when losses exceed a retention. For an individual claim or event, a simplified ceded loss is:

If a claim is 12 million, retention is 5 million and the limit is 10 million, ceded loss is min(7, 10) = 7 million. The insurer retains 5 million.

Aggregate excess-of-loss cover responds when total losses for a period exceed an aggregate attachment point. It can protect against frequency shocks such as epidemics, but pricing depends heavily on event definition, exclusions, reinstatements and aggregation rules.

7.3 Reinsurance decision criteria

A programme should be assessed through:

• expected ceded claims and reinsurance premium;
• reduction in earnings and capital volatility;
• counterparty credit quality and collateral;
• claims payment speed and dispute provisions;
• exclusions, limits, attachment points and reinstatements;
• basis risk, meaning mismatch between actual exposure and contractual recovery;
• accounting and regulatory capital treatment;
• operational ability to identify and report recoverable claims.

Reinsurance should not be purchased solely because it lowers a modelled solvency requirement. Poorly designed cover may create false security, especially where communicable diseases, cyber incidents, provider insolvency or government intervention are excluded.

7.4 Other risk-transfer arrangements

Other mechanisms include stop-loss contracts, captives, catastrophe bonds, provider risk-sharing, medical cost guarantees and co-insurance. Provider arrangements must be designed carefully: transferring excessive insurance risk to providers may create under-treatment, patient selection or provider financial distress. Risk adjustment, quality safeguards and transparent settlement rules are essential.

8. Budgeting and portfolio performance

A health-insurance budget should be a driver-based financial model rather than a simple percentage increase over last year. Key drivers include membership, persistency, premium rate, claims frequency, claim severity, medical inflation, provider prices, commissions, staffing, technology expenditure and reinsurance cost.

For a portfolio with N member-years and expected claim cost c per member-year:

If 50,000 member-years are expected and average claims are 1,800 currency units per member-year, expected claims equal 90 million currency units. The estimate is conditional on the exposure definition and assumptions about benefit design, morbidity, utilisation and inflation.

Scenario budgets should include a base case, adverse case and severe but plausible case. Variance analysis should distinguish volume, price, mix, utilisation, timing and assumption variances. A claims overspend caused by membership growth is different from overspend caused by uncontrolled utilisation.

Portfolio performance should be reviewed at product, employer, distribution channel, provider network and geographic levels. A profitable aggregate book may conceal loss-making segments subsidised by others. Allocation decisions should consider risk-adjusted contribution rather than premium volume alone.

9. Stress testing and scenario analysis

Stress testing asks how the insurer would perform under adverse but plausible conditions. It complements forecasts and capital models because it can examine scenarios not well represented in historical data.

Relevant scenarios include:

• a sudden epidemic increasing admissions and high-cost treatment;
• medical inflation exceeding premium adjustments;
• a major provider network failure;
• delayed premium collection by a large employer;
• reinsurance counterparty default;
• equity-market decline and interest-rate shock;
• cyberattack disrupting claims and payment systems;
• regulatory limits on premium increases;
• simultaneous high lapse among healthy members and retention of high-risk members.

For each scenario, management should specify assumptions, time horizon, affected variables, first-order and second-order effects, management actions and residual risk. A simple claims stress may be represented as:

If base claims are 90 million and the shock is 15%, stressed claims are 90 × 1.15 = 103.5 million. This is a scenario calculation, not a forecast or probability statement.

More advanced models may simulate correlated risks. Correlation assumptions require caution: historical relationships may fail during crises, and diversification benefits can disappear when claims, markets and liquidity deteriorate together.

10. Governance, ethics and regulation

Financial performance is inseparable from governance. The board should oversee risk appetite, capital, reinsurance, reserving, investment, related-party transactions and remuneration incentives. The actuarial function should provide independent challenge on pricing, reserves and capital assumptions. Internal audit should test controls, while compliance should monitor insurance, consumer protection, data and healthcare regulation.

Ethical financial management requires that pricing and claims controls do not unfairly discriminate, obscure coverage or delay legitimate treatment. Automated claims systems should be explainable, monitored for bias and subject to human review for high-impact decisions. Data used for risk segmentation must be lawful, relevant, secure and proportionate.

Common control failures include optimistic reserving, unsupported premium receivables, inadequate reconciliation of reinsurance recoveries, weak provider data, incentives that reward denial rates and failure to disclose material exclusions. Performance dashboards should therefore include customer outcomes, complaints, claim turnaround, appeals, quality indicators and equity metrics, not only financial ratios.

11. Technology and contemporary developments

Modern insurers increasingly use cloud systems, electronic claims, provider APIs, predictive analytics and artificial intelligence. These technologies can improve fraud detection, forecasting and care management, but they introduce model risk, cyber risk, privacy concerns and vendor concentration.

AI models should be governed through documented purpose, validated data, performance monitoring, drift detection, access controls, explainability and an appeal process. A model that predicts high future cost may support early care intervention, but using it to restrict necessary benefits may create ethical and legal problems.

Contemporary financial management also addresses climate-related health effects, pandemic preparedness, mental-health utilisation, ageing populations, specialty drugs, value-based care and the migration from fee-for-service toward outcome-oriented payment. These changes require models that connect financial results with clinical outcomes and population health.

12. Illustrative case: Meridian Health Assurance

Background

Meridian Health Assurance is a fictional mid-sized insurer covering 120,000 member-years. It has experienced rapid growth through employer contracts. Management reports the following annual figures in millions of currency units:

The portfolio has an 86% persistency rate. Two employer groups represent 38% of premium. Claims data show rising outpatient utilisation and a concentration of high-cost oncology claims.

Analysis

The loss ratio is 184 ÷ 240 × 100 = 76.7%. The expense ratio is 43 ÷ 240 × 100 = 17.9%. The combined ratio is approximately 94.6%, indicating an underwriting surplus before investment income and other items.

The solvency ratio is 72 ÷ 60 × 100 = 120%. This exceeds the stated regulatory requirement but may be inadequate after considering concentration, rapid growth and stress results. The 38% premium concentration creates counterparty and persistency risk if either employer changes insurer.

A 15% claims shock would increase claims from 184 million to 211.6 million. Holding premium and expenses constant, the combined ratio would become:

• Stressed loss ratio = 211.6 ÷ 240 × 100 = 88.2%.
• Stressed combined ratio = 88.2% + 17.9% = 106.1%.

The underwriting result would move from a surplus of 13 million to a loss of approximately 14.6 million before investment income and other items.

Approach and solution

Meridian should avoid a single corrective action. It should:

1. Reprice or redesign benefits using credible, risk-adjusted experience while meeting regulation and affordability requirements.
2. Introduce outpatient utilisation management and evidence-based provider pathways without obstructing clinically necessary care.
3. Negotiate quality-linked provider contracts and monitor outcomes, not only unit prices.
4. Purchase aggregate excess-of-loss protection for epidemic and frequency risk, after evaluating cost, exclusions and counterparty strength.
5. Reduce employer concentration through controlled diversification.
6. Establish a capital buffer above the regulatory minimum and define escalation triggers.
7. Improve weekly liquidity forecasting and reconcile premium receivables.
8. Report MCR, combined ratio, persistency, complaints, claim turnaround and clinical outcomes together.

Outcome

In this illustrative case, management’s target is not merely a lower claims ratio. It is a sustainable portfolio with adequate capital, reliable cash flow and acceptable member outcomes. The board approves a three-year plan with quarterly stress testing, independent reserve review and a reinsurance review before renewal.

Learning points

The case demonstrates that a favourable current combined ratio can coexist with concentration, capital and future claims risk. Performance analysis must connect ratios to portfolio composition, cash timing, reinsurance protection and member outcomes.

Challenges and limitations

Financial ratios are affected by accounting definitions, seasonality, reserve development, reinsurance structure and portfolio mix. Ratios may be manipulated or misinterpreted when claims are deferred, expenses are reclassified or unusual investment gains are included. Persistency can hide adverse selection, while MCR can reward low utilisation even when access is poor. Solvency ratios depend on regulatory models and may not capture all operational or systemic risks.

Models also depend on data quality. Incomplete provider records, coding changes, delayed claims, inconsistent membership denominators and weak exposure data can produce false precision. Scenario analysis cannot predict every crisis; its value lies in revealing vulnerabilities and clarifying actions.

Best-practice framework

An advanced health-insurance financial management system should:

• reconcile actuarial, accounting, claims and membership data;
• define every KPI, numerator, denominator, time basis and gross/net treatment;
• review current-year and prior-year claims development separately;
• use risk-adjusted pricing and portfolio segmentation;
• integrate capital, liquidity and reinsurance decisions;
• stress correlated medical, market, counterparty and operational risks;
• maintain independent actuarial, risk, audit and compliance challenge;
• link executive incentives to sustainable outcomes rather than volume alone;
• protect member rights, data privacy and clinical quality;
• document assumptions and conduct back-testing and post-event review.

Chapter Summary

Financial management in health insurance integrates underwriting, claims, expenses, reserving, investment, capital, liquidity and risk transfer. The loss ratio measures claims relative to earned premium; the expense ratio measures underwriting costs; and the combined ratio indicates underwriting performance before investment income. The medical cost ratio focuses on the share of premium or revenue devoted to medical benefits and must be interpreted with quality and access measures.

Persistency and portfolio segmentation reveal the composition and stability of membership. Profitability should be examined through underwriting margin, operating profit, ROE, ROA and risk-adjusted return rather than through reported net profit alone. Cash-flow management is essential because accounting profit does not guarantee the ability to pay claims. Reserves estimate future obligations, while capital absorbs unexpected losses and supports confidence.

Reinsurance can transfer proportional or non-proportional risk, reduce volatility and protect capital, but it introduces cost, counterparty and basis risks. Budgets should be driver-based, and portfolio performance should be assessed by risk-adjusted contribution. Stress testing exposes vulnerabilities to medical, financial, operational and regulatory shocks. Effective governance combines financial discipline with consumer protection, data ethics, clinical quality and regulatory compliance.

Key Terms

Loss ratio: Incurred claims expressed as a percentage of earned premium.

Expense ratio: Underwriting expenses expressed as a percentage of earned premium.

Combined ratio: Loss ratio plus expense ratio.

Medical cost ratio: Medical benefit expense expressed as a percentage of applicable premium or revenue.

Persistency: The proportion of eligible members or policies that remain insured over a specified period.

Attrition: The rate at which members or policies leave a portfolio.

Incurred claims: Claims paid plus the change in outstanding claims provisions.

IBNR: Incurred-but-not-reported claims included in estimated liabilities.

Earned premium: Premium allocated to the period during which coverage is provided.

Liquidity risk: The risk that obligations cannot be paid when due.

Solvency ratio: Eligible own funds divided by the solvency capital requirement.

Economic capital: Capital required to absorb unexpected losses at a defined confidence level and horizon.

Quota share: Proportional reinsurance sharing a fixed percentage of premium and claims.

Excess of loss: Reinsurance responding to losses above a specified retention, subject to a limit.

Retention: The portion of risk or loss retained by the insurer.

Basis risk: The risk that contractual recovery does not match the actual exposure or loss.

RAROC: Risk-adjusted return on capital.

Stress test: Analysis of financial effects under adverse but plausible assumptions.

Risk adjustment: Modification of payment or assessment to reflect differences in expected risk.

Medical inflation: Growth in the cost of healthcare services, technologies and treatments.

Review Questions

Short Answer Questions

1. What does a combined ratio below 100% generally indicate?
2. Why is earned premium preferable to written premium for measuring a period’s loss ratio?
3. Distinguish claims paid from incurred claims.
4. State two reasons why persistency may not always indicate a healthy portfolio.
5. What is the principal purpose of economic capital?

Long Answer Questions

1. Explain how loss ratio, expense ratio, combined ratio and medical cost ratio should be interpreted together.
2. Discuss the relationship between profitability, liquidity, reserving and solvency in a health insurer.
3. Compare quota-share and excess-of-loss reinsurance, including their advantages and limitations.
4. Design a driver-based annual budget for a health-insurance portfolio.
5. Explain the governance and ethical requirements for using AI in claims and financial management.

Analytical / Application Questions

1. An insurer has earned premium of 300 million, incurred claims of 225 million and underwriting expenses of 54 million. Calculate the loss ratio, expense ratio and combined ratio, and interpret the result.
2. A portfolio has 40,000 member-years and expected claims of 2,250 currency units per member-year. A stress scenario increases claims by 18%. Calculate base and stressed claims and explain two managerial responses.
3. An insurer has eligible own funds of 90 million and a solvency capital requirement of 75 million. A proposed reinsurance contract reduces the requirement to 68 million but costs 8 million annually and excludes epidemic losses. Evaluate the decision using capital, cost, coverage and residual-risk considerations.

Multiple Choice Questions with Answers

Question 1

An insurer reports earned premium of 100 million, incurred claims of 78 million and underwriting expenses of 17 million. What is the combined ratio?

A. 78%

B. 83%

C. 95%

D. 105%

Correct Answer: C. 95%

Question 2

Which item is normally included in incurred claims but not necessarily in claims paid during the same period?

A. Outstanding claims provision movement

B. Investment income

C. Shareholders’ dividends

D. New capital contributions

Correct Answer: A. Outstanding claims provision movement

Question 3

A medical cost ratio primarily measures:

A. Medical benefit expense relative to applicable premium or revenue

B. Investment income relative to total assets

C. Eligible capital relative to required capital

D. Members retained relative to new members

Correct Answer: A. Medical benefit expense relative to applicable premium or revenue

Question 4

Under a quota-share treaty, the reinsurer generally:

A. Pays only losses above an attachment point

B. Shares a fixed percentage of premium and claims

C. Pays all claims from one named provider

D. Provides a loan unrelated to insurance risk

Correct Answer: B. Shares a fixed percentage of premium and claims

Question 5

A claim is 12 million, the retention is 5 million and the excess-of-loss limit is 10 million. What is the ceded loss?

A. 2 million

B. 5 million

C. 7 million

D. 12 million

Correct Answer: C. 7 million

Question 6

If eligible own funds are 72 million and the solvency capital requirement is 60 million, the solvency ratio is:

A. 83%

B. 100%

C. 120%

D. 132%

Correct Answer: C. 120%

Question 7

Which statement best describes persistency?

A. The proportion of claims paid within 30 days

B. The proportion of eligible members remaining insured over a period

C. The percentage of premium invested in liquid assets

D. The proportion of expenses recovered from reinsurers

Correct Answer: B. The proportion of eligible members remaining insured over a period

Question 8

Why can a health insurer report accounting profit while experiencing liquidity stress?

A. Profit always excludes claims

B. Premium may be accrued before cash is collected while claims require cash payment

C. Liquidity is determined only by the loss ratio

D. Investment income is always paid in cash immediately

Correct Answer: B. Premium may be accrued before cash is collected while claims require cash payment

Question 9

A 15% claims shock is applied to base claims of 90 million. What are stressed claims?

A. 91.5 million

B. 103.5 million

C. 105 million

D. 135 million

Correct Answer: B. 103.5 million

Question 10

Which is a limitation of relying only on the medical cost ratio?

A. It cannot be calculated using premium data

B. It may reward low utilisation even when access or quality is poor

C. It always includes investment income

D. It directly measures solvency

Correct Answer: B. It may reward low utilisation even when access or quality is poor