combined ratio

A combined ratio is the sum of two ratios, one calculated by dividing incurred losses plus loss adjustment expense (LAE) by earned premiums (the calendar year loss ratio) and the other by dividing all other expenses by either written or earned premiums (i.e., trade basis or statutory basis expense ratio).

When applied to a company's overall results, the combined ratio is also referred to as the composite or statutory ratio. Used in both insurance and reinsurance, a combined ratio below 100 percent is indicative of an underwriting profit.