Permissible Loss Ratio is defined as which expression?

• A. 1 - V - Qt
• B. 1 - V * Qt
• C. V + Qt
• D. 1 - Qt

Answer: (A)

Permissible loss ratio represents the portion of the premium that can be used to cover risk after accounting for two separate cost components: the time value of money on future cash inflows and the mortality (or risk) exposure in the period. Here, V stands for the present value effect of future premiums or investment earnings, and Qt represents the probability (or fraction) of losses due to mortality in year t. Since these are separate deductions from 1, you subtract both from 1 to get the remaining share of premium available as permissible loss. Therefore, the correct expression is 1 minus V minus Qt. For example, if V is 0.05 and Qt is 0.10, the permissible loss ratio is 0.85. The other forms would either mix the components multiplicatively or add an illogical term, not reflecting a straightforward subtraction of two independent cost aspects.