Loss ratio and combined ratio calculator

The combined ratio is the property and casualty insurer's basic scorecard: below 100% means premiums covered losses and expenses, above 100% means they did not. This tool computes it, and the ratios it is built from, using the seven figures an insurer reports. It opens with an imaginary insurer. You can also use it on a captive's results.

How to use it

Enter the figures for the same period, normally a year, in dollars:

1. Earned premium. Premium for the coverage actually provided in the period.
2. Written premium. Premium on policies issued in the period. It is used only for the trade-basis expense ratio.
3. Incurred losses. Losses paid plus the change in reserves.
4. Loss adjustment expenses (LAE). The cost of investigating and settling claims.
5. Underwriting expenses. Commissions, premium taxes, salaries and overhead of underwriting.
6. Policyholder dividends.
7. Net investment income.

Find them in the insurer's annual report, Form 10-K or quarterly earnings supplement. A company that files only statutory statements reports them in its annual statement to regulators.

The math

• Loss ratio = incurred losses ÷ earned premium. LAE ratio = LAE ÷ earned premium.
• Expense ratio (trade basis) = underwriting expenses ÷ written premium.
• Dividend ratio = dividends ÷ earned premium.
• Combined ratio = loss ratio + LAE ratio + expense ratio + dividend ratio.
• Operating ratio = combined ratio − net investment income ÷ earned premium.
• Underwriting result before dividends = earned premium − losses − LAE − expenses.

The tool also shows the combined ratio with every item over earned premium, which is closer to the GAAP presentation.

A hypothetical example with the opening numbers: earned premium of $100 million, written premium of $104 million, losses of $62 million, LAE of $11 million, expenses of $29 million, dividends of $0.5 million and investment income of $7 million. The loss and LAE ratio is 73%. The expense ratio is $29 million ÷ $104 million = 27.9%. With the 0.5% dividend ratio the combined ratio is 101.4%. On an all-earned basis it is 102.5%. The investment income ratio is 7.0%, so the operating ratio is 94.4%. The underwriting result is a $2 million loss, offset by the investment income.

Assumptions and limits

• Statutory accounting charges acquisition costs when they are incurred, so the trade basis divides expenses by written premium to match them to the premium they produced. GAAP defers those costs and spreads them over earned premium, so GAAP ratios differ.
• Companies define their reported ratios a little differently. Many show them with and without catastrophe losses and prior-year reserve development. The tool does not separate either, so read the footnotes.
• Use net or direct figures consistently. Mixing them gives a meaningless ratio.
• If you leave written premium blank, the tool divides expenses by earned premium and the trade-basis row shows a dash.
• The operating ratio here simply subtracts the investment income ratio. Other definitions exist.
• A good ratio in one year proves little. Loss reserves can be wrong, and a low ratio is not the same as financial strength. Check ratings and read how to judge a business insurance company.

For what moves each piece, read the combined ratio: how insurers make (and lose) money on underwriting and how to read an insurance company's earnings report. The glossary defines the combined ratio, the loss ratio, loss adjustment expense and the difference between earned premium and written premium.