1. What is Combined Ratio?

The Combined Ratio is a key metric in the insurance industry that measures underwriting performance by comparing losses and expenses to premiums earned. 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:

• \( \text{Losses} \) — Total insurance claims paid out (USD)
• \( \text{Expenses} \) — Operating and administrative costs (USD)
• \( \text{Premiums} \) — Total premiums earned (USD)

Explanation: A ratio below 100% indicates underwriting profit, while above 100% indicates underwriting loss. The ratio measures efficiency in insurance operations.

3. Importance of Combined Ratio

Details: The Combined Ratio is crucial for assessing insurance company profitability, operational efficiency, and underwriting discipline. It helps investors and regulators evaluate financial health.

4. Using the Calculator

Tips: Enter all values in USD. 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 of 95% mean?
A: A ratio of 95% indicates the insurance company made a 5% underwriting profit (100% - 95% = 5% profit margin).

Q2: What is considered a good Combined Ratio?
A: Generally, ratios below 100% are good. Ratios between 95-100% are considered excellent, while ratios above 105% may indicate financial stress.

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

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

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