Insurance Combined Ratio Calculator
Calculate the combined ratio of an insurance company to assess underwriting profitability from loss and expense ratios.
How to use this tool
- Enter net premiums earned, net losses incurred, loss adjustment expenses (lae) and underwriting expenses in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your combined ratio and the full breakdown beneath it.
⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.
Formula
Loss Ratio = (Net Losses + LAE) / Net Premiums Earned × 100%
Expense Ratio = Underwriting Expenses / Net Premiums Earned × 100%
Combined Ratio = Loss Ratio + Expense Ratio
How it works
The combined ratio is the primary measure of insurance underwriting profitability. A combined ratio below 100% indicates an underwriting profit — the insurer collected more in premiums than it paid out in claims and expenses. A ratio above 100% means an underwriting loss, though insurers may still profit from investment income.
The loss ratio includes loss adjustment expenses (LAE) — the costs of investigating and settling claims. The expense ratio covers commissions, salaries, and other overhead, each divided by net premiums earned.
Worked example
Insurer with $1M Premiums Earned
- Net Premiums Earned: $1,000,000; Losses: $600,000; LAE: $80,000; Underwriting Expenses: $250,000.
- Loss Ratio = ($600,000 + $80,000) / $1,000,000 × 100% = 68.00%.
- Expense Ratio = $250,000 / $1,000,000 × 100% = 25.00%.
- Combined Ratio = 68% + 25% = 93.00%.
- Underwriting Profit = $1,000,000 − $600,000 − $80,000 − $250,000 = $70,000.
Combined Ratio = 93.00% (profitable underwriting); Underwriting Profit = $70,000
Common mistakes to avoid
- Using written premiums instead of earned premiums in the denominator, which distorts ratios for fast-growing insurers whose premiums are not yet fully earned.
- Omitting loss adjustment expenses (LAE) from the loss ratio numerator, understating how much the insurer actually pays out per dollar of premium.
- Comparing combined ratios across different lines of business without adjusting for line norms, since a 95% ratio is excellent in personal auto but may be poor in specialty lines.
Key terms
- Combined Ratio
- The sum of an insurer's loss ratio and expense ratio; below 100% signals underwriting profit.
- Loss Ratio
- Incurred losses plus loss adjustment expenses divided by earned premiums — measures claims efficiency.
- Expense Ratio
- Underwriting expenses divided by earned premiums — reflects the cost of running the insurance operation.
- Loss Adjustment Expenses (LAE)
- Costs incurred to investigate, defend, and settle insurance claims, included with losses in the loss ratio.
- Underwriting Profit
- Premiums earned minus all losses and expenses; separate from investment income.
Frequently asked questions
- What combined ratio indicates underwriting profitability?
- A combined ratio below 100% means the insurer pays out less in losses and expenses than it collects in premiums, indicating underwriting profit.
- Why do some profitable insurers have a combined ratio above 100%?
- Investment income on the float (premiums held before claims are paid) can offset underwriting losses, so insurers with ratios slightly above 100% can still post net profits.
- What is a typical combined ratio for a well-run P&C insurer?
- Most well-run property and casualty insurers target 92-98%. Ratios consistently above 105% for multiple years signal underwriting discipline problems.