Combined Ratio
Definition
The combined ratio is the core profitability metric for property & casualty insurers: the loss ratio (incurred losses and loss-adjustment expenses ÷ earned premiums) plus the expense ratio (underwriting and acquisition expenses ÷ premiums; conventions on the denominator vary between earned and written premiums). It measures underwriting profitability only.
Below 100% means an underwriting profit — the insurer pays out less in claims and expenses than it collects in premiums; above 100% means an underwriting loss. Crucially, an insurer can still be profitable overall above 100% because it earns investment income on the float between premium collection and claims payment.
The combined ratio excludes investment income by design, which is why insurers are assessed on both underwriting discipline (combined ratio) and investment results.
Why interviewers ask
The go-to insurance technical in FIG interviews: define it, state what sub-100% means, and explain why a 103% combined ratio can coexist with positive net income (float and investment income). Confusing loss ratio with combined ratio, or forgetting investment income, are the classic stumbles being screened for.
Related terms
Interviews don't test definitions — they test recall under pressure.
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