Expense ratios

How can one proceed economically in fields of research which can only be explored empirically This is possible by designing experiments so that a maximum of new information is obtained, i.e. by optimizing the information-expense ratio. For the medicinal chemist, the term experiment signifies in this context test compounds and the information refers to structure-activity information. At this point two main problems arise, i.e. 

Insurance loss ratios are another group of measures closely related to EMR. These ratios include loss ratio, expense ratio, and combined ratio. Insurance loss ratios can b e a valid measurement of safety quality. Although not as widely used for benchmarking as OSHA rates and EMR, these ratios are important to understanding insurance, which is a financial motivator in the field of safety. Insurance losses can be defined as the following ... 

Expense Ratios for insurance claims can be measured as the expense versus the total dollar loss for the claim (Bok and Shields 2001). The expenses are costs to the insured in excess of the losses. Insurers must pay expenses such as special services like attorneys fees, rental fees, supplies, and taxes all of which form a cost of doing business (Bickelhaupt 1983,66). 

The ratios alone do not show the whole picture, so it is important to view the underlying dollar amounts. An increase in expense ratios does not necessarily indicate an increase in expense dollars (Bok and Shields 2001). An increasing expense ratio could just as easily result from a decrease in net written premiums provided that expenses are not decreasing at a quicker pace (Bok and Shields 2001). The first expense is what it costs to write insurance-expenses incurred or expense ratio (Bok and Shields 2001). This category includes employee salaries, agent commissions, overhead costs, company cars and other expenses incurred just to open the doors and provide a service. This amount also includes loss adjustment expenses. 

The expense ratio plus the loss ratio equals the combined ratio. Although insurers use several different ratios to calculate costs, the combined loss ratio is the simplest. The nationwide average for the combined ratio is approximately 1.07 on all types of business property-casualty insurance, which includes WC, fire, and related policies. Thus, for every 1 taken in, insurance carriers pay out 1.07 (Taggart and Carter 1999). If a firm s combined ratio (a combination of insurer s expenses and a firm s losses) is below 1.00, it is considered a profitable account. If the ratio is 0.50, it is a very profitable account. This can be used as a bargaining chip with the insurer. However, if the firm s combined ratio exceeds 1.00, this may be a forewarning of cancellation or a rate hike. 

The insurance loss experience for an organization is closely related to its safety performance. An understanding of how insurance premiums are calculated and the type of impact accidents can have upon premiums can provide the safety manager with an additional method for measuring safety performance. Along with measures of lost workdays and recordable accidents, insurance industry measures should also be part of the safety performance measurement and improvement process. Examples of quantifiable insurance markers that are indicative of safety performance are loss ratios, experience modification rates, and expense ratios. These insurance industry measures are yet another type of performance measure available to the safety professional. 

Combined Ratio the expense ratio plus the loss ratio equals the combined ratio. ... 

Insurance Loss Ratios loss ratio, expense ratio, and combined ratio. 

Bok, Ann and George Shields. Rising expense ratios, analysis of rising expense ratios. Website citation www.ncci.com. 

Three categories of insurance expenses include incurred expenses, expense ratios, and combined expense ratios. 

Chargeable hours as a percent of total hours worked, expense ratio, and multiplier as discussed in Chapter 10... 

THE IMPACT OF TIME UTILIZATION RATE AND EXPENSE RATIO ON PROFITABILITY IN THE CONSULTING BUSINESS... 

R = Expense Ratio Let S = non-salary costs of a business that are not billed directly to clients (e.g.. Social Security, professional liability insurance, unemployment insurance, rent, utilities, and entertainment). Let P=total payroll cost. 

The Impact of Time Utilization Rate and Expense Ratio on Profitability in the Consulting Business 315... 

As a further introduction to the importance of the time utilization rate and the expense ratio, consider Table 10.7, which is a year-to-date income statement for a hypothetical consulting firm. 

Sensitivity of Profit to Time UtUization and Expense Ratio... 

Note that S/P = R, the expense ratio, based on earlier definition and it is controlled largely by principals and upper management. 

Figure 10.1 Overhead ratio can be reduced, and therefore profit increased, by increasing the utilization rate and decreasing the expense ratio. (Source Adapted with permission of ASCE from Norris 1987)...

What are the personal, project, and organizational management implications of the impact of time utilization rate and expense ratio on profit Top managers will watch R, the expense ratio, very closely. They control most of it—refer again to its components. They should be very aware that a one percentage point increase in R will cause a roughly four percent drop in profit. 

In summary, consulting firms must be profitable. The income statement shows profit and factors leading to it. Overhead goes to bottom line where it impacts profit. The absolute value of overhead is determined by the overhead ratio, which is a function of the utilization rate and the expense ratio. A one percent increase in U or a one percent decrease in R, will typically cause a several-fold percent increase in profit with profit being more sensitive to U than R. 

One way a consulting firm can reduce its multiplier is to reduce its overhead. As already discussed, a firm can reduce overhead by increasing U (the utilization rate) or by decreasing R (the expense ratio). Another way to reduce the multiplier, as suggested by focusing on the bottom line of the income statement shown in Table 10.7, is to reduce the profit expectation. The reduction of expected profit permits a reduction in expected net revenue, which, in turn, tends to reduce the multiplier. 

Consider an example in which an increase in utilization rate results in a decrease in the multiplier. For the base line situation, assume the income statement presented in Table 10.7. Assume further that the hypothetical firm is able to increase its utilization rate from 0.60 to 0.61, a 1.7 percent increase. Based on the Figure 10.1 relationship showing the overhead ratio as a function of expense ratio and utilization rate, the stated increase in U would reduce the overhead ratio by about 2.8 percent or the overhead by 16,800—from 600,000 to 583,200. If pre-tax profit is held at 190,000, the firm can reduce annual total revenues and, therefore, net revenues by 16,800 to 1,783,200 and 1,183,200 respectively. Therefore, the revised multiplier is equal to 1,183,200 divided by 400,000 = 2.96, which is a 1.33 percent decrease from the base line value of 3.00. In summary, a 1.7 percent increase in time utilization rate for the situation used in the example yields a 1.3 percent decrease in the multiplier with no reduction in pre-tax profit. 

The income statement was created on a spreadsheet to facilitate running many scenarios. Careful review of the Table 10.8 scenario illustrates the application of various topics covered in this chapter, including raw labor rate utilization rate overhead as a sum of non-billable direct labor cost and non-billable, non-salary costs expense ratio overhead ratio and charge-out rates. The calculated values of parameters such as utilization rate (U), expense ratio (R), overhead ratio (O), and multiplier (M), when compared to values common in the consulting industry, provide a check on the reasonableness of any scenario. Unreasonable values of parameters would be cause for exploring additional scenarios until a workable income statement can be developed. 

Most investors are timid to look at municipal bonds on tbeir own and buy muni funds instead. When you think about it, chances are that buying funds is an expensive mistake. Here s why most funds have an annual expense ratio over 1% per year. When you have a fund that invests in bonds yielding around 5%, you are giving away 20% of your return to your mutual fund company every single year Add the fact that you are not in complete control of your taxable events in a fund, and they start to look less and less attractive. So, how do you get started buying individual bonds Simple. You can run an online search at www.munidirect.com and type in your state, maturity range, and credit quality, and a list of bonds will be presented for you to choose from. 

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