Reinsurance tutorials #19
What is the combined ratio ?
The “Combined Ratio”, also called “Operating Ratio”, corresponds to the arithmetic sum of two ratios: the incurred loss to an earned premium, and the incurred expense to a written premium.
It is considered as the best and most simple index to measure the current underwriting performance of an insurer or reinsurer, and provides a comprehensive overview of an insurer or reinsurer’s profitability, all the while measuring the money that flows out of a company in the form of dividends, expenses and losses.
The combined ratio is used by a company to gauge how well it is performing in its daily operations. The combined ratio is calculated by taking the sum of the incurred losses and expenses and then dividing them by the premium.
The combined ratio formula is equal to the claims paid plus reserves (if any) divided by the earned premium.
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