What is the incurred loss ratio if an insurance policy shows a gross premium of £1,000, settled claims of £300, and outstanding claims of £200?

To determine the incurred loss ratio, it is crucial to first calculate the total incurred claims, which include both settled claims and outstanding claims. In this case, settled claims amount to £300, and outstanding claims are £200. Adding these together gives a total incurred claims cost of £500 (£300 + £200).

The incurred loss ratio is then calculated using the formula:

[ \text{Incurred Loss Ratio} = \frac{\text{Total Incurred Claims}}{\text{Gross Premium}} \times 100 ]

Substituting the values into the formula:

[ \text{Incurred Loss Ratio} = \frac{500}{1000} \times 100 = 50% ]

This calculation shows that the incurred loss ratio is indeed 50%. This ratio is significant as it indicates the portion of the gross premium that is consumed by the claims, providing a vital insight into the profitability of the insurance policy. A higher incurred loss ratio can imply a higher risk or lower profitability for the insurer.