Loss Ratio and Combined Ratio
The core profitability measures comparing claims and expenses to earned premium.
Overview
Loss ratio is incurred claims divided by earned premium, running near 60 to 80 percent in well run books depending on line. The combined ratio adds the expense ratio, acquisition costs and overhead divided by premium: below 100 means underwriting profit, above means paying out more than collected, with investment income carrying the difference. US property casualty combined ratios deteriorate in bad catastrophe years, and personal auto crossed 110 in 2022 inflation before rate increases repaired it. A 96 combined ratio means 4 cents of underwriting margin per premium dollar. Investors and regulators track these numbers line by line, and rating agencies translate deteriorating ratios into capital pressure and downgrades.
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