In setting goals, insurers carefully evaluate the interaction between premiums and loss ratio and how changes in each affect profit. Which one of the following statements concerning the relationship between premium and loss ratio is true?

In setting goals, insurers carefully evaluate the interaction between premiums and loss ratio and how changes in each affect profit. Which one of the following statements concerning the relationship between premium and loss ratio is true? 



A. If premiums increase by a greater percentage than incurred losses increase, the loss ratio will decrease.
B. If incurred losses increase at a faster rate than premiums, the loss ratio will improve.
C. If premiums decrease at a faster rate than losses increase, the loss ratio will decrease.
D. If losses decrease at a faster rate than premiums decrease, the loss ratio will increase.


Answer: A. If premiums increase by a greater percentage than incurred losses increase, the loss ratio will decrease.

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