1. What is Combined Ratio?

The Combined Ratio (CR) is a key profitability metric in the insurance industry that represents the sum of the Loss Ratio and Expense Ratio. It measures the underwriting performance of an insurance company.

2. How Does the Calculator Work?

The calculator uses the Combined Ratio formula:

Where:

• \( CR \) — Combined Ratio (%)
• \( \text{Loss Ratio} \) — Incurred losses divided by earned premiums (%)
• \( \text{Expense Ratio} \) — Underwriting expenses divided by written premiums (%)

Explanation: A combined ratio below 100% indicates underwriting profit, while above 100% indicates underwriting loss.

3. Importance of Combined Ratio

Details: The combined ratio is crucial for assessing an insurer's underwriting profitability, operational efficiency, and overall financial health. It helps investors and regulators evaluate company performance.

4. Using the Calculator

Tips: Enter both loss ratio and expense ratio as percentages. Values should be positive numbers representing the respective ratios.

5. Frequently Asked Questions (FAQ)

Q1: What does a combined ratio of 95% mean?
A: A combined ratio of 95% indicates the insurance company has an underwriting profit of 5% (100% - 95% = 5% profit margin).

Q2: What is considered a good combined ratio?
A: Generally, a combined ratio below 100% is considered profitable. Ratios between 95-100% are typical for successful insurers.

Q3: How is loss ratio calculated?
A: Loss Ratio = (Incurred Losses + Loss Adjustment Expenses) ÷ Earned Premiums × 100%

Q4: What factors affect expense ratio?
A: Commission expenses, underwriting costs, administrative overhead, marketing expenses, and other operational costs.

Q5: Can combined ratio be negative?
A: No, combined ratio cannot be negative as both loss ratio and expense ratio are positive values. However, it can be less than 100% indicating profitability.