A measure of profitability used by an insurance company to indicate how well it is performing in its daily operations.
The combined ratio is defined as
The sum of incurred losses and operating expenses measured as a percentage of earned premium.
The combined ratio is comprised of the claims ratio and the expense ratio.
The claims ratio is claims owed as a percentage of revenue earned from premiums.
The expense ratio is operating costs as a percentage of revenue earned from premiums.
The combined ratio is calculated by taking the sum of incurred losses and expenses and then dividing them by earned premium.
It is a measure of the profitability of the insurer. (The ratio is typically expressed as a percentage.)
The combined ratio shows the underwriting profitability of the insurer. A ratio below 100% indicates that the company is making underwriting profit while a ratio above 100% means that it is paying out more money in claims that it is receiving from premiums.
‘Combined Ratio Calculated as:
“Combined Ratio”= “Incurred Loses + Expanses” /”Earned Premium”
Filed under: All About Insurance, Shashi Ki Pathshala Tagged: Insurance
on: August 25, 2015 at 12:39PM