# Combined Ratio

Claims, underwriting costs and expenses as a percentage of premiums. Below 100% is an underwriting profit.

## Definition

The combined ratio adds up what an insurer pays in losses and loss adjustment expense, what it spends to write policies, and its general expenses, and divides by premiums earned. Below 100% the insurance operation makes money before any investment income.

## Formula

((Losses + Underwriting Costs + General Expenses) ÷ Premiums Earned) × 100

## Why it matters

The standard measure of underwriting discipline for property and casualty insurers. A persistently low combined ratio means the insurer prices risk better than its rivals.

## How Standard Equity uses it

Substituted for gross margin in insurer reports, only for a short-tailed property and casualty book that reports an underwriting cost line (invested assets up to five times premiums). Life insurers and composites show the benefit ratio instead. Lower is better.

## The metric

| Category   | Insurance      |
| ---------- | -------------- |
| Unit       | %              |
| Applies to | Insurance only |

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