A measure of a non-life insurer's technical profitability, comparing the sum of claims and expenses to earned premiums.
The combined ratio is the fundamental measure of a non-life insurer's technical profitability. It compares to earned premiums the sum of two components, the cost of claims, which forms the loss ratio, and acquisition and administrative expenses, which form the expense ratio. A combined ratio below 100 percent means the insurance activity itself generates a profit even before investment income is taken into account, whereas a ratio above 100 percent reflects a technical loss that may or may not be offset by investment returns. This indicator allows the performance of insurers, lines of business or accounting years to be compared, and the underwriting discipline of a market to be tracked. An important nuance must be stated: a combined ratio above 100 percent is not necessarily a bad deal, since an insurer with a long investment horizon may accept a moderate technical loss if its investment income covers it. Conversely, in a low-rate environment, technical discipline becomes imperative again, as the insurer can no longer rely on asset returns to absorb a deteriorated ratio.
An insurer reporting a 62 percent loss ratio and a 31 percent expense ratio has a combined ratio of 93 percent, hence a technical margin of 7 points before investment income.
ratio combiné, combined ratio