Combined Ratio
Loss ratio plus expense ratio; below 100% indicates underwriting profit
What is Combined Ratio?
Combined ratio is the sum of an insurer's claims costs and operating expenses, as a percentage of the premiums it earned. It shows whether underwriting is profitable.
Below 100% means the insurer made an underwriting profit, and above 100% means it paid out more than it took in before investment income.
How this KPI is measured
- Function
- Operations & Supply Chain
- Sub-function
- Portfolio Performance
- Industry
- Insurance
- Type
- Lagging
- Impact
- Financial control
- Unit
- %
- Measurement frequency
- Monthly / Quarterly
- Formula
- (Claims costs + Operating expenses) / Net premiums earned × 100
How to calculate it
Add claims costs and operating expenses, divide by net premiums earned, and multiply by 100.
For example, with claims of 60,000,000, expenses of 30,000,000 and net premiums earned of 100,000,000, the combined ratio is 90%.
It equals the loss ratio plus the expense ratio, so improving either lowers it.
Where it is used
Judging underwriting profit
See if the core business pays.
Comparing lines and insurers
Benchmark.
Setting pricing and expense targets
Plan improvements.
How to improve it
Tips and common mistakes
- Investment income can make a business profitable even above 100%, but relying on it is risky.
- Look at trends as well as levels.
- Compare by line, as risks differ.
More Operations & Supply Chain kpi library
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