Insurance
Combined ratio
Loss ratio plus expense ratio. Below 100 percent means an underwriting profit.
Last reviewedWhat does Combined ratio mean?
The combined ratio is the loss ratio plus the expense ratio, and it is the main profit test for a property and casualty insurer. Below 100 percent, premiums cover claims and costs, so the insurer makes an underwriting profit. Above 100 percent it loses money on underwriting and relies on investment income from its float. Example: a loss ratio of 68 percent and an expense ratio of 29 percent give a combined ratio of 97 percent, so the insurer keeps 3 of every 100 of premium before investment income. Each 1 point change moves 1 percent of premium into or out of profit, so small moves matter.
Where does it come up in case interview prep?
- How insurance works and makes moneyLesson in Insurance: life, property and casualty, and health
- Insurance unit economics: the combined ratio at workLesson in Insurance: life, property and casualty, and health
- Insurance: players, trends, regulation, and how to crack the casesLesson in Insurance: life, property and casualty, and health
Related terms
- Loss ratioClaims as a share of premiums earned.
- Expense ratio (insurance)An insurer's costs of selling and running policies as a share of premiums.
- Float (insurance)Premiums an insurer holds and invests before it pays claims.
- Percent versus percentage pointsA change in a rate is measured in points; its relative change in percent.
- ReinsuranceInsurance for insurance companies.
- PersistencyThe share of policies still in force and paying after a set time.
- TakafulIslamic insurance built on mutual help, where members share each other's losses.