CII Certificate in Insurance - London Market Underwriting Principles (LM3) Practice Test 2025 – Your Comprehensive Guide to Mastering Insurance Certification!

A combined ratio below 100% indicates positive financial performance within an insurance operation. The combined ratio is calculated by adding the loss ratio (claims incurred divided by earned premiums) to the expense ratio (operating expenses divided by earned premiums). When this ratio is below 100%, it signifies that the insurer is earning more in premiums than it is spending on claims and expenses combined. This situation suggests profitability in underwriting activities, meaning the insurer is effectively managing its risks and expenses relative to the premiums it collects.

While the other options reference various operational aspects, they do not accurately capture the essence of what a combined ratio under 100% signifies. High operational costs or claims and expenses exceeding premiums would lead to a higher combined ratio, not a lower one. Similarly, insufficient underwriting results would correspond to a combined ratio above 100%, indicating that the company is not generating adequate underwriting income to cover its claims and costs. Thus, a combined ratio below 100% reflects efficient underwriting practices and overall financial health of the insurance provider.