Combined Ratio Calculator

Combined Ratio Formula:

\[ \text{Combined Ratio} = \frac{\text{Incurred Losses} + \text{Expenses}}{\text{Earned Premiums}} \times 100\% \]

Combined Ratio:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the Combined Ratio?

The Combined Ratio is a key metric in insurance that measures underwriting profitability by comparing incurred losses and expenses to earned premiums. It indicates whether an insurance company is making an underwriting profit or loss.

2. How Does the Calculator Work?

The calculator uses the Combined Ratio formula:

\[ \text{Combined Ratio} = \frac{\text{Incurred Losses} + \text{Expenses}}{\text{Earned Premiums}} \times 100\% \]

Where:

\( \text{Incurred Losses} \) — Total claims paid plus reserves for future claims
\( \text{Expenses} \) — Operating expenses including commissions, salaries, and overhead
\( \text{Earned Premiums} \) — Premiums earned during the period for coverage provided

Explanation: A ratio below 100% indicates underwriting profit, while above 100% indicates underwriting loss. The ratio is expressed as a percentage.

3. Importance of Combined Ratio

Details: The Combined Ratio is crucial for assessing insurance company performance, determining pricing adequacy, and evaluating operational efficiency. It helps investors and regulators understand the company's underwriting health.

4. Using the Calculator

Tips: Enter all values in the same currency unit. Incurred losses and expenses must be non-negative, while earned premiums must be positive for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What does a Combined Ratio below 100% mean?
A: A ratio below 100% indicates the insurance company is making an underwriting profit, meaning premiums collected exceed losses and expenses.

Q2: What is considered a good Combined Ratio?
A: Generally, a ratio below 95% is considered excellent, 95-100% is good, and above 100% indicates underwriting losses.

Q3: How does Combined Ratio differ from Loss Ratio?
A: Loss Ratio only considers incurred losses to earned premiums, while Combined Ratio includes both losses and expenses.

Q4: Can a company be profitable with Combined Ratio above 100%?
A: Yes, if investment income exceeds underwriting losses, the company can still be profitable overall.

Q5: What factors affect the Combined Ratio?
A: Claims frequency and severity, expense management, premium pricing, reinsurance costs, and economic conditions all impact the ratio.