1. What Is The Combined Ratio?

The Combined Ratio (CR) is a key profitability metric in the insurance industry that measures the percentage of premium dollars spent on claims and expenses. 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:

Where:

• \( \text{Incurred Losses} \) — Total claims paid plus reserves for future claims
• \( \text{Expenses} \) — Operating expenses including commissions, salaries, and administrative costs
• \( \text{Earned Premiums} \) — Premiums recognized as revenue during the period

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

3. Importance Of Combined Ratio Calculation

Details: The Combined Ratio is crucial for insurers, investors, and regulators to assess the underwriting performance of an insurance company, excluding investment income.

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 of 95% mean?
A: A CR of 95% means the insurer spent 95 cents on claims and expenses for every dollar of premium earned, resulting in a 5% underwriting profit.

Q2: What is a good Combined Ratio?
A: Generally, a Combined Ratio below 100% is considered good, indicating underwriting profitability. Ratios between 95-100% are typical for profitable insurers.

Q3: How is Combined Ratio different from Loss Ratio?
A: Loss Ratio only considers incurred losses to earned premiums, while Combined Ratio includes both losses and expenses, providing a more comprehensive view.

Q4: Can Combined Ratio be over 100%?
A: Yes, a CR over 100% indicates the insurer is paying out more in claims and expenses than it's collecting in premiums, resulting in underwriting loss.

Q5: Why is Combined Ratio important for investors?
A: It helps investors assess the core underwriting profitability of an insurance company, separate from investment performance.