1. What is the Combined Ratio Insurance Formula?

The Combined Ratio (CR) is a key profitability metric used in the insurance industry to measure underwriting performance. 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:

• \( Losses \) — Total claims and loss adjustment expenses paid
• \( Expenses \) — Underwriting, acquisition, and operational expenses
• \( Premiums \) — Total premiums earned during the period

Explanation: The formula calculates what percentage of premium income is used to cover losses and operating expenses. A ratio below 100% indicates underwriting profit, while above 100% indicates underwriting loss.

3. Importance of Combined Ratio Calculation

Details: The Combined Ratio is crucial for insurers to assess underwriting profitability, set pricing strategies, evaluate operational efficiency, and make informed business decisions about risk selection and capital allocation.

4. Using the Calculator

Tips: Enter all values in the same currency unit. Losses and expenses should be non-negative, while premiums must be positive. The result shows the combined ratio as a percentage.

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 incurred.

Q2: What is considered a good Combined Ratio?
A: Typically, ratios between 95-100% are considered good, indicating profitable underwriting while remaining competitive. Ratios below 95% show strong profitability.

Q3: How does Combined Ratio differ from Loss Ratio?
A: Loss Ratio only considers losses relative to premiums, while Combined Ratio includes both losses and expenses, providing a more comprehensive view of underwriting performance.

Q4: Can Combined Ratio be over 100%?
A: Yes, ratios over 100% indicate underwriting losses, where claims and expenses exceed premium income. Insurers rely on investment income to offset these losses.

Q5: What factors affect the Combined Ratio?
A: Claims frequency and severity, expense control, pricing adequacy, reinsurance costs, and operational efficiency all impact the Combined Ratio.