Combined Ratio

The combined ratio measures how much of an insurer’s earned premium is consumed by claims and operating costs. It works because both the loss ratio and expense ratio are already expressed as proportions of premium, so adding them gives the total cost burden before investment income is considered. A result below 100% indicates underwriting profit, while a result above 100% means premiums did not fully cover losses and expenses.

Use this when evaluating the underwriting performance of a property and casualty insurer or comparing different lines of insurance business. It is especially useful for checking whether premium income is sufficient to pay claims and run the business without relying on investment returns.

• Using written premium instead of earned premium when the ratios are based on earned premium
• Assuming a combined ratio below 100% means total company profit, when it only shows underwriting profit
• Mixing percentages and decimals incorrectly, such as adding 0.62 and 31 instead of 0.62 and 0.31