Combined Ratio Calculator

Combined Ratio Formula:

\[ CR = \frac{\text{Incurred Losses} + \text{Incurred Expenses}}{\text{Earned Premiums}} \times 100\% \]

Combined Ratio (CR):

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1. What Is The Combined Ratio Formula?

The Combined Ratio is a key profitability metric used in the insurance industry to measure the overall underwriting performance of an insurance company. It represents the percentage of premium dollars spent on claims and expenses.

2. How Does The Calculator Work?

The calculator uses the Combined Ratio formula:

\[ CR = \frac{\text{Incurred Losses} + \text{Incurred Expenses}}{\text{Earned Premiums}} \times 100\% \]

Where:

\( \text{Incurred Losses} \) — Total claims paid and reserved for future claims (USD)
\( \text{Incurred Expenses} \) — Total underwriting and operational expenses (USD)
\( \text{Earned Premiums} \) — Premiums earned during the period (USD)

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

3. Importance Of Combined Ratio Calculation

Details: The Combined Ratio is crucial for insurance companies to assess their underwriting profitability, pricing adequacy, and operational efficiency. It helps investors and regulators evaluate the financial health of insurance providers.

4. Using The Calculator

Tips: Enter all values in USD. Incurred losses and expenses should be positive numbers, while earned premiums must be greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What does a Combined Ratio below 100% mean?
A: A ratio below 100% indicates that the insurance company is making an underwriting profit, meaning premiums collected exceed claims and expenses paid.

Q2: What is considered a good Combined Ratio?
A: Generally, a Combined Ratio below 95% is considered excellent, 95-100% is acceptable, and above 100% indicates underwriting losses.

Q3: How does Combined Ratio differ from Loss Ratio?
A: Loss Ratio only considers incurred losses vs earned premiums, while Combined Ratio includes both losses and expenses, providing a more comprehensive view.

Q4: Can investment income affect Combined Ratio?
A: No, Combined Ratio only measures underwriting performance. Investment income is considered separately when evaluating overall profitability.

Q5: What industries use Combined Ratio?
A: Primarily used in property and casualty insurance, but the concept can be applied to other insurance sectors with appropriate modifications.