How To Calculate Combined Ratio Under IFRS 17

Combined Ratio Formula:

\[ CR = \frac{Claims + Expenses}{Premiums} \times 100 \]

Combined Ratio (CR):

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1. What Is Combined Ratio Under IFRS 17?

The Combined Ratio (CR) under IFRS 17 is a key profitability metric for insurance companies that measures the percentage of premium income used to cover claims and expenses. It indicates the underwriting performance of an insurance portfolio.

2. How Does The Calculator Work?

The calculator uses the Combined Ratio formula:

\[ CR = \frac{Claims + Expenses}{Premiums} \times 100 \]

Where:

\( Claims \) — Total claims paid or incurred (currency)
\( Expenses \) — Total operating expenses (currency)
\( Premiums \) — Total premium income (currency)

Explanation: The formula calculates what percentage of premium income is consumed by claims and expenses. A ratio below 100% indicates underwriting profit, while above 100% indicates underwriting loss.

3. Importance Of Combined Ratio Calculation

Details: Under IFRS 17, combined ratio analysis helps insurers assess underwriting profitability, monitor operational efficiency, and make informed decisions about pricing, reserving, and risk management strategies.

4. Using The Calculator

Tips: Enter claims and expenses in currency units, premiums in currency units. All values must be valid (claims ≥ 0, expenses ≥ 0, premiums > 0).

5. Frequently Asked Questions (FAQ)

Q1: What does a combined ratio of 95% mean?
A: A CR of 95% means the insurer used 95% of premium income to cover claims and expenses, resulting in a 5% underwriting profit margin.

Q2: How does IFRS 17 affect combined ratio calculation?
A: IFRS 17 introduces new revenue recognition and measurement principles that may change how premiums, claims, and expenses are recognized and measured.

Q3: What is a good combined ratio for insurers?
A: Generally, a combined ratio below 100% is considered good, with ratios between 95-100% being typical for profitable insurers.

Q4: Does combined ratio include investment income?
A: No, combined ratio only measures underwriting performance. Investment income is considered separately in overall profitability analysis.

Q5: How often should combined ratio be calculated?
A: Insurers typically calculate combined ratio quarterly and annually to monitor underwriting performance and support strategic decision-making.