What this calculator does
The combined ratio is the central measure of insurance underwriting. It adds the loss ratio, being claims against premiums, to the expense ratio, being the cost of acquiring and administering policies. Below 100 per cent means underwriting made money.
Insurers routinely run above 100 and remain profitable, because they earn investment income on premiums held before claims are paid. A combined ratio of 104.0 per cent means a 4 per cent underwriting loss, which investment returns may well cover.
The formula
The loss ratio divides incurred losses plus loss adjustment expenses by earned premiums. The expense ratio divides underwriting expenses by the same premiums. Adding the two gives the combined ratio.
| Term | Meaning |
|---|---|
| Loss ratio | Claims and claims handling costs as a percentage of premiums earned. |
| Expense ratio | Commissions, underwriting and administration as a percentage of premiums. |
| Combined ratio | The two added together. Below 100 is an underwriting profit. |
The inputs explained
| Field | What to enter |
|---|---|
| Incurred losses ($) | Incurred losses, meaning claims attributable to the period. |
| Loss adjustment expenses ($) | Loss adjustment expenses, the cost of investigating and settling claims. |
| Underwriting expenses ($) | Underwriting expenses, including commissions and administration. |
| Earned premiums ($) | Earned premiums for the period. |
When to use it
Assessing an insurer's underwriting
The combined ratio isolates underwriting performance from investment results.
Comparing across insurers
It is the standard measure, which makes companies directly comparable.
Tracking the effect of a bad claims year
A catastrophe pushes the loss ratio sharply, and the combined ratio shows the full impact.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How do claims drive the combined ratio?
The same book of business at three claims levels.
Questions
Can an insurer be profitable above 100 per cent?
Yes, and many are. Premiums are collected before claims are paid, and the investment return on that float can more than cover a modest underwriting loss. Sustained ratios well above 100 are another matter.
What is a good combined ratio?
Below 100 means underwriting itself is profitable, which is the goal. Consistently in the low 90s is considered strong. The acceptable level depends on how much investment income the business generates.
Why separate loss adjustment expenses?
Because the cost of investigating and settling claims is distinct from the claims themselves, and tracking it separately shows whether claims handling is efficient. Both belong in the loss ratio.
Why can the ratio swing so much year to year?
Because claims are inherently lumpy. A single catastrophe can move the loss ratio by tens of points, which is why insurers are usually assessed over several years rather than one.
For property claim settlement figures, see the actual cash value calculator. For general profitability measures, see the operating margin calculator.