The sum of Loss ratio and Expense ratio is called combined ratio. It shows the profitability of the insurer. The loss ratio measures the efficiency in underwriting and the expense ratio measures the management competency and efficiency. The loss ratio is calculated as the claims that are payable to the earned premium in percentage, and expense ratio is calculated as a percentage of the operating expense to the earned premium.
It is better if the combined ratio is lesser than 100%, as this shows that the premiums earned are more than the operating expense and claims paid. Hence, lower the combined ratio better the performance of company.
Leverage
Leverage measures the value of equity in a company …show more content…
Many analyses are solely conducted to ensure the company is legally compliant with the laws and regulations of the economy it functions in.
Limitations of Pestel Analysis
Dcosta (2015) stated that PESTEL analysis presents following limitations:
- The users tend to over-simplify the data, which makes it possible to miss some important data.
- The tool is most effective when users are from different departments or come with different perspectives. Also, this tool needs to be updated regularly.
- A huge amount of data needs to be collected from external environment for analysis, this is time consuming and an expensive affair. Also, the external factors need to be constantly monitored and updated.
- The business environment is continuously developing and changing with time, PESTEL is a time consuming process and hence it becomes difficult to keep up with the changes and data might become obsolete if not computed quickly.
- PESTEL analysis evaluates data on assumptions and only scans external factors thereby neglecting internal factors that could be impacting an …show more content…
Threats:
Lastly, these are factors that have negative impact on organizational performance.
The four factors of SWOT are summarized below with the help of a diagram: The Creately Blog (2012)
Though they are factors that affect a company internally or externally, there is a certain co-existence between them all which is represented in a diagram below where it depicts the action the company should take when each of the 2 categories of external and internal factors are compared, for better performance.
Enhanced SWOT Analysis (JISC Infonet, 2014)
Limitations of SWOT Analysis
Franz and Schall – Practitioner’s Guide lists the following disadvantages of the SWOT model:
- SWOT reports are usually vague and inconsistent since it’s a general and hastily done exercise.
- Since the SWOT results are to be used in strategic decision procedures, those involved in the analysis will sacrifice on the quality of their inputs.
- It doesn’t allow proper discussion and verification of all the external and internal factors suggested by concerned parties involved in the survey. This also leads to less reliable input.
- Data may be based on assumptions that can be