Combined ratio
Also known as CR
The combined ratio is an insurer’s core profitability measure: incurred losses plus expenses divided by earned premium. Below 100% is an underwriting profit. Above 100% means claims and costs came to more than the premium.
It puts two ratios together: the loss ratio (claims divided by premium) and the expense ratio (operating costs divided by premium). A combined ratio of 98% means the insurer spent 98 cents on claims and expenses for every premium dollar, keeping two cents of underwriting profit before investment income.
How to calculate the combined ratio
The simplest version adds the two component ratios. Combined ratio = loss ratio + expense ratio. A 68% loss ratio plus a 30% expense ratio gives a 98% combined ratio. A more precise version divides incurred losses plus expenses by earned premium, and methods vary on whether expenses use earned or written premium.
What drives it
The loss ratio moves with claim accuracy. Every over-generous split, missed recovery and drifting reserve pushes it up. The expense ratio moves with the cost of running the operation: handler hours, rework, arbitration, technology. How well and how efficiently claims are decided shows up in both.
Combined ratio vs loss ratio
The loss ratio only covers the claims side. The combined ratio adds the cost of doing business, so it tells you whether the underwriting operation as a whole made money. That is why executives and boards watch it.
Example
An insurer earns €100m in premium, pays €70m in claims and reserves, and spends €29m running the business. Its loss ratio is 70%, its expense ratio 29%, and its combined ratio 99%, a one-point underwriting profit. Take two points of leakage off the loss ratio and the combined ratio falls to 97%. Same book, three times the underwriting margin.
Speed, accuracy and cost are three of the four numbers Mysa scores on every decision, and all three feed the combined ratio, where five to eight points typically hide.
Common questions
What is a good combined ratio?
Anything below 100% is an underwriting profit. Consistently strong insurers often aim for the low-to-mid 90s.
How do you calculate the combined ratio?
The simplest way adds the loss ratio and the expense ratio. For example, a 68% loss ratio plus a 30% expense ratio is a 98% combined ratio.
What is the difference between combined ratio and loss ratio?
The loss ratio covers only claims against premium. The combined ratio adds operating expenses, showing whether the whole underwriting operation was profitable.
Does a combined ratio over 100% mean a loss?
It means an underwriting loss: claims and expenses came to more than premium. An insurer can still be profitable overall once investment income is counted.