Combined Ratio
The combined ratio is the sum of an insurer's loss ratio and expense ratio; a value below 100 percent means the underwriting business is profitable.
Calculation
The combined ratio relates claims expenditure (including loss adjustment expenses and changes in reserves) plus operating expenses to earned premium. A value of 95 percent means five cents of underwriting profit remain from every premium dollar – before investment income.
What it tells you
The ratio measures the quality of the core business independently of investment returns. Values above 100 percent may be deliberately accepted in high-interest-rate phases, but are a long-term warning signal for underwriting discipline.
Relevance for policyholders
For corporates, their insurer’s combined ratio is an indicator of price stability and remediation pressure: persistently poor ratios in a line of business often precede premium increases or capacity withdrawal.