1. What is 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 is the sum of the loss ratio and expense ratio.

2. How Does the Calculator Work?

The calculator uses the combined ratio formula:

Where:

• \( Loss\ Ratio \) — (Incurred Losses + Loss Adjustment Expenses) / Earned Premiums
• \( Expense\ Ratio \) — Underwriting Expenses / Written Premiums

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

3. Importance of Combined Ratio

Details: The combined ratio is a key metric for insurers to assess their underwriting performance, excluding investment income. It helps evaluate operational efficiency and pricing adequacy.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What is a good combined ratio?
A: Generally, below 100% is good (indicating underwriting profit). 95-100% is typical for profitable insurers.

Q2: How does combined ratio differ from operating ratio?
A: Operating ratio includes investment income, while combined ratio focuses solely on underwriting performance.

Q3: Can combined ratio be negative?
A: No, since both loss and expense ratios are typically positive values, combined ratio cannot be negative.

Q4: Why do insurers aim for combined ratio below 100%?
A: Because it means underwriting operations are profitable before considering investment income.

Q5: How often should combined ratio be calculated?
A: Typically calculated quarterly and annually as part of financial reporting.