1. What is Insurance 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 the percentage of premium dollars spent on claims and expenses.

2. How Does the Calculator Work?

The calculator uses the Combined Ratio formula:

Where:

• \( Loss\ Ratio \) — Incurred losses divided by earned premiums (%)
• \( Expense\ Ratio \) — Underwriting expenses divided by written premiums (%)
• \( CR \) — Combined Ratio (%)

Explanation: The combined ratio measures an insurer's underwriting profitability. A ratio below 100% indicates underwriting profit, while above 100% indicates underwriting loss.

3. Importance of Combined Ratio

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

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What is a good combined ratio?
A: A combined ratio below 100% indicates underwriting profitability. Ratios between 95-100% are generally considered good, while below 95% is excellent.

Q2: How is combined ratio different from operating ratio?
A: Combined ratio measures underwriting performance only, while operating ratio includes investment income and other non-underwriting activities.

Q3: What components make up the expense ratio?
A: Expense ratio includes commissions, salaries, marketing costs, administrative expenses, and other operational costs divided by written premiums.

Q4: Can combined ratio be over 100%?
A: Yes, combined 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: How do investment returns affect combined ratio interpretation?
A: Investment returns can offset underwriting losses. An insurer can be profitable overall even with combined ratio above 100% if investment income is sufficient.