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Combined Ratio
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Definition. The combined ratio is an insurer's core measure of underwriting profitability: incurred losses plus expenses divided by earned premium. Below 100% is an underwriting profit; above 100% means the insurer paid out more in claims and expenses than it collected in premium.
Also known as:
combined loss and expense ratio
The combined ratio is the headline gauge of whether an insurer's core business — insuring risks — actually makes money, before investment income. It adds the loss ratio (incurred losses ÷ earned premium) to the expense ratio (underwriting expenses ÷ premium). A combined ratio of 100% is break-even; below 100% is an underwriting profit; above 100% is an underwriting loss the carrier hopes to offset with investment returns.
Why it matters to a business buyer: a line or class running a high combined ratio for the industry is one a carrier will either re-price upward or exit. That shows up in your renewal through new rate filings and tighter underwriting — even if you personally had no claims. Conversely, a soft (profitable) market pushes carriers to compete on price.
The ratio is built on earned premium, not written premium — the portion actually recognized over the elapsed policy period — so a fast-growing insurer can look worse on a combined-ratio basis than its long-run economics suggest. You can see line-by-line loss experience for real markets on the GBC Rate Index.
Example
An insurer earns $100M in premium, pays $65M in losses (65% loss ratio) and $30M in expenses (30% expense ratio). Its combined ratio is 95% — a 5-point underwriting profit. If losses jump to $78M, the combined ratio hits 108% and the carrier files for a rate increase.
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Disclosures
📘 Educational content only.
Reviewed by licensed Property & Casualty insurance agent
Jason Wootton (NPN 7694718). Not insurance advice, an individual recommendation, or a solicitation in any state. Insurance regulations vary by state. For specific coverage decisions, consult a licensed insurance agent in your state.
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