1. What is the Combined Ratio?

The Combined Ratio is a measure of profitability used by insurance companies to indicate how well they are performing in their daily operations. It compares the sum of incurred losses and operating expenses to earned premiums.

2. How Does the Calculator Work?

The calculator uses the Combined Ratio formula:

Where:

• Incurred Losses — Total claims paid plus amounts held in reserve for future claims
• Operating Expenses — All costs associated with running the insurance business
• Earned Premiums — The portion of premium that applies to the expired period of the policy

Explanation: A ratio below 100% indicates an underwriting profit, while a ratio above 100% means the company is paying out more money in claims than it's receiving from premiums.

3. Importance of Combined Ratio

Details: The Combined Ratio is a key metric for insurers to assess their underwriting profitability. It helps investors and analysts evaluate an insurance company's financial health.

4. Using the Calculator

Tips: Enter all values in USD. Incurred losses and operating expenses should be positive numbers. Earned premiums must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Combined Ratio?
A: Generally, a ratio below 100% indicates profitability. The lower the ratio, the more profitable the insurer is considered to be.

Q2: How is this different from Loss Ratio?
A: Loss Ratio only considers incurred losses versus earned premiums, while Combined Ratio includes both losses and operating expenses.

Q3: What affects the Combined Ratio?
A: Factors include claims frequency/severity, underwriting accuracy, expense management, and premium pricing.

Q4: Can Combined Ratio be over 100%?
A: Yes, this means the insurer is paying out more in claims and expenses than it's earning in premiums.

Q5: How do investment income affect this?
A: Combined Ratio measures underwriting performance only. Insurers often offset underwriting losses with investment income.