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Combined Ratio Formula:
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The Combined Ratio (CR) is a key profitability metric used in the insurance industry to measure the overall underwriting performance of an insurance company. It represents the percentage of premium dollars spent on claims and expenses.
The calculator uses the Combined Ratio formula:
Where:
Explanation: The ratio indicates how efficiently an insurance company is operating. A ratio below 100% indicates underwriting profit, while above 100% indicates underwriting loss.
Details: The Combined Ratio is crucial for insurance companies, investors, and regulators to assess the financial health and operational efficiency of an insurer. It helps in pricing strategies, risk management, and performance evaluation.
Tips: Enter all values in USD. Losses and expenses must be non-negative numbers, while premiums must be positive numbers greater than zero for accurate calculation.
Q1: What does a Combined Ratio below 100% mean?
A: A ratio below 100% indicates that the insurance company is making an underwriting profit, meaning it collects more in premiums than it pays out in claims and expenses.
Q2: What is considered a good Combined Ratio?
A: Generally, a ratio below 100% is good. Ratios between 95-100% are considered excellent, while ratios above 100% indicate the company is paying out more than it collects in premiums.
Q3: How is Combined Ratio different from Loss Ratio?
A: Loss Ratio only considers claims and loss adjustment expenses relative to premiums, while Combined Ratio includes both losses and operating expenses.
Q4: Can investment income affect Combined Ratio?
A: No, Combined Ratio only measures underwriting performance and excludes investment income. A company can have a ratio above 100% but still be profitable due to investment returns.
Q5: What factors can cause high Combined Ratios?
A: High claims frequency/severity, inadequate premium pricing, high operational costs, catastrophic events, and poor risk selection can all contribute to elevated Combined Ratios.