Morgan calculated two ratios over the last five years, where underwriting expenses as a percentage of direct premiums written declined while direct premiums written per underwriter increased. What type of analysis is this?

Morgan calculated two ratios over the last five years, where underwriting expenses as a percentage of direct premiums written declined while direct premiums written per underwriter increased. What type of analysis is this?

• A. Trend Analysis
• B. Horizontal analysis
• C. Vertical analysis
• D. Ratio comparison

Answer: (A)

Tracking how metrics change over multiple years to identify direction and consistency is trend analysis. Here, two ratios are observed across five years: the underwriting expense ratio declines while direct premiums written per underwriter rises. This shows a sustained movement in performance over time—improving efficiency (lower expense ratio) and greater productivity (higher premiums per underwriter). While horizontal analysis also deals with changes over time, the key idea here is the time-series pattern or trend in the ratios. Vertical analysis looks at items within a single period, so it doesn’t fit. Ratio comparison is too general; the situation specifically exemplifies examining trends across several years.

Tracking how metrics change over multiple years to identify direction and consistency is trend analysis. Here, two ratios are observed across five years: the underwriting expense ratio declines while direct premiums written per underwriter rises. This shows a sustained movement in performance over time—improving efficiency (lower expense ratio) and greater productivity (higher premiums per underwriter). While horizontal analysis also deals with changes over time, the key idea here is the time-series pattern or trend in the ratios. Vertical analysis looks at items within a single period, so it doesn’t fit. Ratio comparison is too general; the situation specifically exemplifies examining trends across several years.