What Is a Combined Ratio?

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The combined ratio is the loss ratio plus the expense ratio for an insurance company.

Key Takeaways

  • The combined ratio is a quick summary of the financial health of an insurance company
  • Combined Ratio = Loss Ratio + Expense Ratio
  • The lower the combined ratio, the better the company is doing financially.
  • A combined ratio under 100% indicates that the company is profiting; one that’s over 100% indicates the company is losing money on underwriting.
  • Combined ratios don’t take into accounts profits from investments or other sources.

Definition and Examples of Combined Ratio

The combined ratio consists of two different ratios added together. To calculate this number, you add together the loss ratio and expense ratio. The combined ratio is expressed as a percentage of earned premiums.

Combined Ratio = Loss Ratio + Expense Ratio

If a company has a combined ratio of 90%, 90% of its premiums go to paying for insured losses and expenses. That means 10% of the premiums are profit.

This ratio shows if the insurer earned a profit from underwriting, or if it’s spending more in expenses than it’s receiving in premiums. It is a number that can tell you quickly whether or not an insurance company is making money on underwriting.

When looking at an insurance company’s financial records, the combined ratio is also known as the composite ratio, or the statutory ratio. The smaller this number, the better. A combined ratio of less than 100 means the insurance company has an underwriting profit.


Just because the combined ratio is over 100% doesn’t mean the insurance company isn’t profitable overall. It simply means the underwriting portion of the business isn’t making money. The company could still have a profit due to investments and other sources of income. It’ll use another equation called an operating ratio to get a more accurate sense of its underwriting profitability.

  • Alternate name: composite ratio, statutory ratio

How Does a Combined Ratio Work?

To find the combined ratio, you’ll first need to calculate the company’s loss and expense ratios. You can get the loss ratio by dividing loss adjustments by premiums earned. This number shows you what percentage of payouts are settled.

Loss Ratio = Losses Incurred / Premiums Earned

To find the expense ratio, divide the underwriting expenses of an insurance company by the net premiums it earned. This shows you the percentage of the premiums going toward operating expenses.

Expenses Ratio = Underwriting Expenses / Premiums Earned

Once you have these two ratios, add them together to find the combined ratio. If this number is under 100%, the insurer is making a profit in underwriting. If it’s over 100%, the company is not making a profit in that business area.


There’s a slightly different formula you can use to calculate the combined ratio: Combined Ratio = (Losses + Expenses) / Premiums. However, since the loss ratio and the expense ratio are both found by dividing by premiums, the simplest way to calculate the combined ratio is to add those two numbers. Mathematically, you’ll get the same result.

An Example of Combined Ratio

Let’s say QRS insurance company has a loss ratio of 73.4%, and an expense ratio of 21.2%. The combined ratio for this insurer is 94.6%. This means its underwriting profit is 5.4% (100% - 94.6%).

What Does a Combined Ratio Tell You? 

The combined ratio tells you a lot about an insurance company’s financial status at a glance. The lower the number is, the more profitable the company is.

A combined ratio under 100% indicates the company is profitable, while a combined ratio over 100% means the insurer is spending more in expenses than it takes in in premiums. With a combined ratio of more than 100%, an insurance company could benefit from raising its prices or implementing stronger risk-management policies to reduce losses. The insurer could also increase profitability by lowering its operating expenses, improving its digital channels, raising customer retention rates, and more.

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  1. Doron Nissim. Columbia Business School Center for Excellence in Accounting & Security Analysis. "Analysis and Valuation of Insurance Companies." Page 127. Accessed Oct. 12, 2021.

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