Premiums and claims
Insurers use premiums to pay claims and expenses, and they may invest remaining assets. The combined ratio usually adds a loss ratio and an expense ratio to describe underwriting results, but definitions can vary by product, jurisdiction, and reporting basis.
Calculate the combined ratio
A combined ratio below 100% can indicate that premiums exceeded claims and expenses under that measure. Above 100% can signal underwriting losses, but an insurer's net income also depends on investment returns, reinsurance, taxes, and reserve estimates.
Separate investment results
Premiums can grow while catastrophe claims or higher repair costs worsen the loss ratio. Conversely, investment gains may lift net income even when underwriting weakens. Separate the insurance operation from investment performance.
A hypothetical loss year
Suppose a hypothetical insurer reports 100 in premiums, 68 in claims and loss-adjustment costs, and 32 in expenses. The combined ratio is 100%. Reported results can differ depending on where reinsurance recoveries are included, so check the formula and comparison basis.
Periods and products in filings
Connect results by product with catastrophe losses, reinsurance costs, reserve development, and renewal pricing in filings. Check whether one-off disasters were included and whether estimates for earlier accident years changed.
Limits of the ratio
A combined ratio does not guarantee a future loss rate or return. Review contract duration, pricing power, reserve uncertainty, and asset duration, while matching periods and product mix in comparisons.