What does Combined Ratio mean? Read on to discover the definition & meaning of the term Combined Ratio - to help you better understand the language used in insurance policies.
The sum of two ratios, one calculated by dividing incurred losses plus loss adjustment expense (LAE) by earned premiums (the calendar year loss ratio), and the other calculated by dividing all other expenses by either written or earned premiums (i.e., trade basis or statutory basis expense ratio). When applied to a company's overall results, the combined ratio is also referred to as the composite, or statutory, ratio. Used in both insurance and reinsurance, a combined ratio below 100 percent is indicative of an underwriting profit.
We hope the you have a better understanding of the meaning of Combined Ratio.