McBrothers and Sons, Inc. earned premium of $4,523,584,371, and incurred losses and LAE of $4,568,662,935, underwriting expenses of $916,828,986, and written premiums of $4,615,768,451. Which statement is true?

• A. McBrothers and Sons, Inc. has a combined ratio that reflects its long-tail lines of business.
• B. The company has a superior margin due to short-tail lines.
• C. The company has a break-even combined ratio.
• D. The data do not allow calculating the combined ratio.

Answer: (A)

Understanding how the combined ratio relates to tail types is key here. The combined ratio shows underwriting profitability by comparing what’s paid out in claims and loss adjustment expenses plus underwriting expenses to the premiums earned. Using the given figures: incurred losses and LAE plus underwriting expenses total 5,485,491,921, and earned premiums are 4,523,584,371. The combined ratio is 5,485,491,921 / 4,523,584,371 ≈ 1.213, or about 121.3%. That’s well over 100%, indicating underwriting losses. Long-tail lines often carry more reserve uncertainty and later-developing claims, which can drive the ratio higher as reserves and LAE accumulate over time. So this result is consistent with long-tail characteristics, making the statement about long-tail lines the best description. The data do allow calculating the ratio, and the result does not indicate a break-even or superior margin from short-tail lines.