A ratio that measures an insurance company’s profitability. It relates the total of claims incurred/ losses, expenses , and other payouts (including distributed profits) to the premiums written in the market. If a combined ratio is below 1, the company is perceived to be making an underwriting profit while a ratio above 1 means the company is paying out more in claims than the premiums received.

This ratio combines two ratios together: 1) a ratio relating incurred losses plus loss adjustment expense (LAE) to earned premiums (the loss ratio for a calendar year), and 2) a ratio calculated by dividing all other expenses by written or earned premiums (EP) (i.e., the expense ratio, as determined on a trade basis or statutory basis).

A combined ratio, applied to a company’s overall results, is also referred to as the composite ratio or statutory ratio.