Glossary

Combined ratio

A measure of insurer underwriting profit: claims and expenses as a percentage of premium, where under 100 means a profit and over 100 a loss.

The combined ratio is the standard measure of whether an insurer makes money on the insurance it sells, before counting investment income. It adds the loss ratio, which is claims and claim-handling costs divided by earned premium, to the expense ratio, which is operating costs such as commissions, salaries and advertising divided by premium.

A combined ratio under 100 means an underwriting profit; over 100 means the insurer paid out more in claims and expenses than it took in. Example: an insurer earns $1 billion in auto premium, incurs $750 million in losses and loss adjustment expenses, and spends $250 million on other expenses. Its loss ratio is 75, its expense ratio 25 and its combined ratio 100, breakeven. If losses rise to $820 million, the combined ratio reaches 107, and the insurer loses 7 cents of every premium dollar on underwriting.

Insurers can live with a ratio slightly above 100 when investment income covers the difference, but sustained high ratios are a main driver of rate increases, and companies cite them in rate filings. Calculations differ in detail; some divide expenses by written rather than earned premium. When news reports cite auto insurers' combined ratios, check the source and the year. See loss ratios and rate filings: how insurers justify an increase.

Last reviewed October 4, 2026

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Related terms

Loss ratio The share of premium an insurer pays out in claims, often including claim-handling costs; a key number in rate filings and profit reports. Expense ratio An insurer's operating costs, such as commissions, salaries and advertising, as a percentage of premium; one half of the combined ratio. Earned premium The share of a policy's premium that pays for the part of the term already past; the rest is unearned and refundable on cancellation. Direct written premium The total premium an insurer charges on policies it writes in a period, before reinsurance, used to measure market share and company size. Rate filing The package of proposed rates, rating rules and supporting data an insurer submits to a state regulator when it wants to change prices.

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