1. What is the Combined Operating Ratio?

The Combined Operating Ratio (COR) 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 Operating Ratio formula:

Where:

• \( Losses \) — Total claims paid and reserved (currency)
• \( Expenses \) — Operating and underwriting expenses (currency)
• \( Premiums \) — Total premiums earned (currency)

Explanation: The formula calculates what percentage of premium income is consumed by claims and operating costs. A COR below 100% indicates underwriting profit, while above 100% indicates underwriting loss.

3. Importance of COR Calculation

Details: COR 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 the same currency unit. Losses and expenses should be positive values, while premiums must be greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What does a COR of 95% mean?
A: A COR of 95% means the insurance company spends 95 cents on claims and expenses for every dollar of premium earned, resulting in a 5% underwriting profit.

Q2: What is considered a good COR?
A: Generally, a COR below 100% is considered good as it indicates underwriting profitability. The lower the COR, the more profitable the underwriting operations.

Q3: How does COR differ from loss ratio?
A: Loss ratio only considers claims costs, while COR includes both claims costs and operating expenses, providing a more comprehensive view of underwriting performance.

Q4: Can COR be negative?
A: No, COR cannot be negative as it represents a percentage. Values range from 0% to potentially over 100%, but typically fall between 80% and 120% for most insurers.

Q5: Why is COR important for insurance investors?
A: COR helps investors assess the core underwriting profitability of an insurance company, separate from investment income, providing insight into the company's operational efficiency and pricing strategy.