1. What Is The Combined Ratio?

The Combined Ratio 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.

2. How Does The Calculator Work?

The calculator uses the Combined Ratio formula:

Where:

• \( \text{Losses} \) — Total claims paid and reserved (currency)
• \( \text{Expenses} \) — Operating and acquisition costs (currency)
• \( \text{Premiums} \) — Total premiums earned (currency)

Explanation: A ratio below 100% indicates underwriting profit, while a ratio above 100% indicates underwriting loss. The ratio measures how efficiently an insurer is operating.

3. Importance Of Combined Ratio

Details: The Combined Ratio is crucial for assessing insurance company profitability, investor analysis, regulatory compliance, and strategic decision-making in underwriting and pricing.

4. Using The Calculator

Tips: Enter all values in the same currency unit. Losses and expenses must be non-negative, while premiums must be positive. The result shows the combined ratio as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What Does A Combined Ratio Below 100% Mean?
A: A ratio below 100% indicates the insurer is making an underwriting profit - they are collecting more in premiums than they are paying out in claims 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. However, this varies by insurance sector.

Q3: How Does Combined Ratio Differ From Loss Ratio?
A: Loss Ratio only considers claims relative to premiums, while Combined Ratio includes both claims and operating expenses, providing a more comprehensive view.

Q4: Can Investment Income Affect Combined Ratio?
A: No, Combined Ratio only measures underwriting performance. Investment income is considered separately when evaluating overall company profitability.

Q5: Why Is Combined Ratio Important For Investors?
A: It helps investors assess the core operational efficiency of an insurance company and its ability to generate underwriting profits consistently.