How to calculate an insurer Combined Ratio

  1. What is Combined Ratio?
  2. What is Combined Ratio used for?
  3. Example of how to calculate Combined Ratio…
  4. How the experts make Combined Ratio work tor them
  5. Common mistakes and how to avoid them

What is Combined Ratio?

Combined Ratio is a measure of performance used by underwriters/insurance companies.

What is Combined Ratio used for?

Combined Ratio is perhaps the most useful way to determine the profitability of an underwriting operation.

Example of how to calculate Combined Ratio…

To calculate Combined Ratio simply add the Loss Ratio to the Expense Ratio.

Combined Ratio = Loss Ratio + Expense Ratio

How the experts make Combined Ratio work for them

A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss. Ensuring easy access to accurate Combined Ratio figures is critical for underwriters; without it or some meaningful equivalent we cannot ever be certain of company position, and therefore cannot expand or make float investments.

Common mistakes and how to avoid them

Combined Ratio is dead simple to calculate providing you have access to accurate Loss Ratio and Expense Ratio figures. To ensure you get this right, first read our respective articles on Loss Ratios and Expense Ratios.


As ever. we absolutely thrive on your questions and feedback. Leave us a comment below!

Need to calculate the Combined Ratio? Use our free to use and access, underwriting claims ratios calculator. If you need help using the calculator please see our brief manual for the underwriting claims ratios calculator here.

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  1. Hi Adam
    I find your How to’s writing interesting. I have read your “How to calculate Loss Ratio example” useful. However, can you giove examples of how you arrive at the expense ratio–Let me elaborate my doubt:

    I believe the expense ratio is the ratio of management expenses divided by earned premium or gross premium { depending upon how you are calulating the loss ratio–based on either of these}–Correct me / advise me.

    Further, if I asssume I am correct in the above, can I calculate the combined ratio for each class of business–say Property / Motor vehicle etc.separately? We can adopt different methods of apportioning the management expenses { since many of the expenses are common to all classes of business}–say based on Gross premium written / Net Written premium / Net EARNED premium ( before commission expenses) / Net Earned Premium after commission expenses,etc. I am not sure what would be THE correct method to use. Would be grateful for your advices.


  2. Hi Sundaram,

    Thanks for your comment. The truth is that there is no “THE correct way” as such, insurance companies use a variety of methods – including those you describe – depending on the exact situation.

    Certainly however you can create expense and combined ratios for different classes of business, in fact I’d recommend you do. Depending on the size of your operation and what you’re trying to achieve, calculating ratios across all classes of business alone may only be so useful; you also need to drill down into specific areas in order to know how those parts are performing.

    The most important thing is to be consistent. Unless you compare apples to apples you’ll never know whether your operation is profitable or not. This means if you’re using Earned Premium in your calculations for one class, you must be careful do the same for the next and so on. It may sound obvious but mistakes are easily made.

    If you’d like me to look at this in more detail for you, drop me a personal e-mail (you can contact me via the details you find on our About page) or add another comment. If you let me know what your ultimate goals are I’ll advise you on the best solution.

    Best wishes,


  3. Dear Adam,

    Which is correct for managment expense ratio?

    is it management expenses/net earned premium ie gross premium less reinsurance less(more) changes in unearned premium reserve

    management expenses/net written premium ie gross premium less reinsurance


    appreciate it a lot.

  4. If you are using “written premium minus reinsurance” in the expense ratio and you add this to the loss ratio, you are going to get an error in your combined ratio, because the loss ratio will use the earned premium

    1. Follow what Adam Bishop says in his response to Faisal.
      There would be no error as you said, because we rightly call it a “combined ratio”, otherwise it would just be a “ratio”.
      Another question is : shall we deduct the reinsurance commission from the expenses? I would say “YES”.

    1. The combined ratio is only measuring the underwriting performance and does not include any financial charges or financial income. An underwriting account can be profitable, but the company’s result is subject to many other movements that take place outside of the pure underwriting account. You should also check what the ratio is really showing you, an underwriter or business manager will typically be more interested in the performance of their account or division and probably be excluding costs not directly impacting their account, they see only premium and claims, check whether the expense ratio includes brokerage and other expenses or just brokerage, if the premium is stated gross of acquisition costs, or brokerage, then it is likely that the expense ratio is understated and does not include other overheads that are allocated to the business line or account when looking at the Company’s financial performance.

  5. Hi Adam, I work for an insurance company and I have two questions:

    1. What would you include in the expense ratio? Could you please detail on “administrative costs”?
    2. If you want to calculate the combined ratio on a particular line of business – such as bancassurance – how do you calculate the expense costs involved? You would calculate it for the whole insurance company and then divide it by the total number of employees and then multiply by the number of persons involved in managing the bancassurance activity? Or you would only take into consideration those people directly involved in managing the bancassurance activity? I hope I made myself understood. Thanks a lot. Diana

  6. Hi Everyone

    The Combined Ratio, also known as Combined Operating Ratio or COR, is an indicator of how much EARNED PREMIUM is consumed by claims and expenses. A combined ratio can be GROSS, before reinsurance in which case the earned premium and claims are gross of RI, or it can be net in which case the claims are net of recoveries and the premium net of RI. It is commonly expressed NET, so that underwriting result can be determined as (100% – COR) * Net Earned Premium.

    Now onto the issue of what to include, agains we face a situation where the underwriter view is different from the accountants. When an underwriter looks at their account it is typically on a Year of Account basis rather than financial year, but will almost always consider the expense ratio to exclude brokerage, brokerage is netted from gross premium (so to an underwriter gross premium is net of brokerage!). From an accounting viewpoint the practice is to show gross premium before deducting brokerage, the brokerage is included within the expense ratio, it is a mathematical consequence therefore that the accounting view of expense ratio is much higher than the underwriters view, the overall COR is not effected though.

    Furthermore, some expenses may be considered non-underwriting expenses when calculating the COR and excluded altogether, particularly when looking at business segments for underlying performance. From a financial reporting perspective however it is normal to include non underwriting expenses within the expense ratio.

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