YOU ASK:
What is the definition of Combined Ratio?
WE ANSWER:
Combined Ratio refers to the percentage of premium to claims and expenses. This is one way that an insurance company measures its profitability. When the combined ratio on a policy or client is less that 100%, this means that the company makes an underwriting profit on that certain policy. If the ratio is more than 100%, it means that the company is paying more money for claims as opposed to the money it receives for premiums.
The combined ratio is calculated by getting the sum of the incurred losses and expenses and dividing this by the earned premium.
This ratio reflects the profitability of an account, something which is earned through managing the claims and account well. It does not include income made in investments.
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