1. What is the Combined Ratio?

The Combined Ratio is a key performance metric in the insurance industry that measures overall underwriting efficiency. 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:

Where:

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

Explanation: The formula calculates what percentage of earned premiums is consumed by losses and expenses. 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 profitability, pricing adequacy, and operational efficiency. It helps investors and regulators evaluate an insurer's financial health.

4. Using the Calculator

Tips: Enter all amounts in USD. Incurred losses and expenses should be positive values, 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 the insurer is making an underwriting profit, meaning premiums collected exceed losses and expenses.

Q2: What is considered a good Combined Ratio?
A: Generally, ratios below 95% are excellent, 95-100% are good, and above 100% indicate underwriting losses. However, this varies by insurance type and market conditions.

Q3: How is Combined Ratio different 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 Combined Ratio be negative?
A: No, since all components are positive values, Combined Ratio ranges from 0% to potentially very high percentages in catastrophic loss scenarios.

Q5: Why is this metric important for insurance companies?
A: It directly measures underwriting performance and helps determine if premium rates are adequate to cover risks and expenses while generating profit.