The financial report for Hometown Insurer contains the following information: What is Hometown Insurer's expense ratio?

The financial report for Hometown Insurer contains the following information: 


Earned premiums $4,000,000
Written premiums $5,000,000
Net investment income $1,000,000
Incurred Losses $3,000,000
Incurred underwriting expense $2,000,000

What is Hometown Insurer's expense ratio?


A. 20%
B. 40%
C. 50%
D. 75%


Answer: B. Hometown Insurer's expense ratio is its incurred underwriting expenses ($2,000,000) divided by its written premiums ($5,000,000), or 40 percent.

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