Combined ratio uses the relationship between the total amount of earned premiums and the total amount of incurred losses and expenses over a given period of time to measure the profitability and financial health of an insurance company. There is an inverse relationship between the combined ratio and the company’s profitability. A combined ratio that is below 100 percent, shows that the company is making profit.
Combined Ratio = ((Incurred Losses + Expenses) / Earned Premium)*100
Combined Ratio = Underwriting Loss Ratio + Expense Ratio
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