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Profit of a motor insurer in Saudi Arabia
You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.
Case timer
00:00
1. Read the prompt aloud
Read it slowly, then pause. Let the candidate ask questions before they structure.
A motor insurer in Saudi Arabia earns premiums of SAR 1,000 million in a year. Claims are SAR 720 million, commissions SAR 100 million, and administration costs SAR 130 million. It holds on average SAR 1,500 million of investments for future claims and earns 4 percent on them. Calculate the loss, expense, and combined ratios and the profit before tax. Then say what happens if repair costs push claims up by 5 percentage points of premium.
2. Answers to clarifying questions
This case has no scripted clarifying answers. Answer from the prompt, and say "assume what you think is reasonable" if the prompt does not cover it.
3. A model structure
Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.
- Insurer profit before tax
- Underwriting result = premiums minus claims minus expenses
- Investment income = invested assets x yield
- Ratios: loss, expense, combined
4. The working, step by step
Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.
Step 1: Loss ratio
What a strong candidate does: Claims divided by premiums.
Loss ratio (percent): 720 ÷ 1,000 × 100 = 72
Step 2: Expense ratio
What a strong candidate does: Commissions plus administration, divided by premiums.
Expense ratio (percent): (100 + 130) ÷ 1,000 × 100 = 23
Step 3: Combined ratio
What a strong candidate does: Loss ratio plus expense ratio.
Combined ratio (percent): 72 + 23 = 95
Step 4: Underwriting result
What a strong candidate does: Premiums minus claims minus all expenses.
Underwriting profit (SAR millions): 1,000 - 720 - 100 - 130 = 50
Step 5: Investment income
What a strong candidate does: 4 percent on SAR 1,500 million.
Investment income (SAR millions): 1,500 × 0.04 = 60
Step 6: Profit before tax
What a strong candidate does: Underwriting profit plus investment income.
Profit before tax (SAR millions): 50 + 60 = 110
Step 7: Claims shock
What a strong candidate does: The loss ratio rises from 72 to 77 percent, so claims rise by SAR 50 million and the underwriting profit disappears.
Underwriting result after the shock (SAR millions): 1,000 - 770 - 100 - 130 = 0
Step 8: Profit after the shock
What a strong candidate does: Only investment income is left, a fall of 50 out of 110.
Fall in profit (percent): (110 - 60) ÷ 110 × 100 = 45.45
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
The insurer should act now on claims costs, because a 5 point rise in the loss ratio would cut profit before tax from SAR 110 million to SAR 60 million, about 45 percent. First, its combined ratio is already 95 percent, so underwriting earns only SAR 50 million. Second, investment income of SAR 60 million is the larger part of profit. The priorities are repricing the riskiest customer groups, controlling repair costs through approved garages and fighting claims fraud. The risk is that higher prices push good drivers to competitors. As a next step, track claims cost per policy by customer group each month.
Risks a strong answer names: Raising prices can push good drivers to competitors; Investment income falls if interest rates fall; Reserves for this year's claims may still change.
Score the candidate
Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.
This case has no exhibit. Score Exhibit reading on how the candidate used the data you gave them: did they pick out the number that matters and say what it means?
Total
0 out of 25
Score all five criteria to see the band and the feedback template.