Classroom 1: Combined Ratio

Combined Ratio:

This ratio is one of the important profitability ratios used by insurance companies. It is used to relate premium income to claims, administration and dividend expenses.

Formula:                  Loss ratio + Expense ratio + Dividend ratio
                             -----------------------------------------------
                                                 Earned Premiums

A combined ratio of below 100% would denote a profitable insurance company while anything greater than 100% would indicate loss.
For example, a ratio of 98% would mean 2% of underwriting profit, while a ratio of 103% would mean an underwriting loss of 3% for each premium rupees