You will assume the role of a senior analyst hired by a fictitiouscompany, Premium Acceptance, a midsized property insurance carrier.Premium Acceptance is performing well with respect to several keyperformance indicators, including policies in force, policy retention,and new business counts.

One of your objectives as the newly appointed senior risk analyst isto develop a framework for managing loss ratios which is one of thefirm’s largest key performance indicators. A loss ratio is simply thedifference between the ratio of claims paid by an insurance carrier andthe ratio of premiums paid. The board of directors depends on theability to forecast loss ratios, which in turn enables them to forecastprofitability metrics to the shareholders. The organization will nowconsider implementing the use of statistics for measuring risks.

Your deliverable should be composed in a report. Be sure to address the following items:

• Explain how statistics is used to formally define risk in the risk assessment process.
• Discuss at least two statistical tools that can be employed to measure risk.
• Convey which tool best serves the company’s purposes and explain why it is.
• What are the ramifications of the organization electing not to use statistics in this process?