1. What is Combined Ratio?

The Combined Ratio (CR) is a key profitability metric used in the insurance industry to measure the sum of loss ratio and expense ratio. 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:

• \( CR \) — Combined Ratio (%)
• \( LR \) — Loss Ratio (%)
• \( ER \) — Expense Ratio (%)

Explanation: The combined ratio represents the percentage of premium dollars spent on claims and expenses. A ratio below 100% indicates underwriting profit, while above 100% indicates loss.

3. Importance of Combined Ratio

Details: The combined ratio is crucial for insurance companies to assess their underwriting performance, pricing adequacy, and overall financial health. It helps investors and regulators evaluate company efficiency.

4. Using the Calculator

Tips: Enter loss ratio and expense ratio as percentages. Both values must be non-negative numbers representing valid percentage values.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good combined ratio?
A: A combined ratio below 100% is generally considered good, indicating underwriting profitability. Ratios between 95-100% are typical for profitable insurers.

Q2: How is loss ratio calculated?
A: Loss ratio = (Incurred Losses + Loss Adjustment Expenses) ÷ Earned Premiums × 100%

Q3: How is expense ratio calculated?
A: Expense ratio = Underwriting Expenses ÷ Written Premiums × 100%

Q4: What does a combined ratio over 100% mean?
A: A ratio over 100% indicates the insurer is paying out more in claims and expenses than it's collecting in premiums, resulting in underwriting loss.

Q5: Can investment income affect combined ratio interpretation?
A: Yes, insurers can still be profitable with combined ratios over 100% if investment income is sufficient to cover underwriting losses.