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Combined Ratio
Definition: The combined ratio is defined as the sum of incurred losses and operating expenses measured as a percentage of earned premium. It is a measure of the profitability of the insurer.
Description: The combined ratio can be decomposed into claims ratio and expense ratio. The claims ratio measures the claims that are payable as a percentage of the earned premiums. The expense ratio measures the operating expense as a percentage of the premium earned.
The combined ratio shows the underwriting profitability of the insurer. The ratio does not take into account the investment profits. A combined ratio of less than 100 is considered better as it shows that the insurer is earning more by way of premiums relative to the claims paid and the operating expensed incurred. Conventionally, a lower combined ratio is better.
- Part of Speech: noun
- Synonym(s):
- Blossary:
- Industry/Domain: Insurance
- Category: General insurance
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