The combined ratio is insurance’s profitability verdict in one number: claims plus costs, divided by premiums. Under 100% and underwriting itself makes money; over 100% and the insurer is paying for the privilege of writing policies.
Combined Ratio Calculator
The insurance underwriting test: losses plus expenses against premiums earned.
The formula
Combined Ratio = (Incurred Losses + Underwriting Expenses) ÷ Earned Premiums × 100
equivalently: Loss Ratio + Expense Ratio
Worked example
| Incurred losses | $700,000 |
| Underwriting expenses | $250,000 |
| Earned premiums | $1,000,000 |
| Loss ratio / expense ratio | 70% / 25% |
| Combined ratio | 95% — underwriting profit |
Reading it like an analyst
The decomposition is the diagnosis: a bad combined ratio from the loss side means pricing or risk-selection problems; from the expense side, an operations problem — different diseases, different cures. And a ratio slightly over 100% isn’t automatically failure: insurers invest premium “float” between collection and claims, so modest underwriting losses can coexist with healthy total profit. That’s also the ratio’s limit — it grades the underwriting engine only, which is exactly why analysts prize insurers who stay under 100 across cycles: they’re being paid to hold the float others rent. For the general-business cousin of this margin logic, see the profit margin calculator.
FAQ
What is a good combined ratio? Below 100% means underwriting profit; consistently low-90s is strong. Over 100% means underwriting losses, potentially offset by investment income.
What are the two components? Loss ratio (claims ÷ premiums) and expense ratio (operating costs ÷ premiums) — the combined ratio is their sum.
Can an insurer profit with a ratio over 100%? Yes — investment income on premium float can outweigh modest underwriting losses. The combined ratio grades underwriting alone.
Why use earned premiums, not written? Premiums are earned as coverage is delivered; written premiums include coverage not yet provided and would mismatch the period’s losses.