Chapter 17 · Day 17 — Life and non-life insurance
Non-life insurance and the combined ratio
One ratio tells you whether the underwriting itself makes money — and why an insurer can lose on underwriting and still profit.
20 of 30 · 12 min
Non-life (general) insurance writes shorter contracts — motor, fire, marine, health. Underwriting performance can be measured directly.
- Loss ratio = Incurred claims ÷ Earned premium × 100
- Expense ratio = Underwriting expenses ÷ Earned premium × 100
- Combined ratio = Loss ratio + Expense ratio
| Combined ratio | Meaning |
|---|---|
| Below 100% | Underwriting profit — premiums exceeded claims and costs |
| Above 100% | Underwriting loss — the policies lost money |
Worked — Illustrative Example
Earned premium Rs 1,80,00,00,000. Incurred claims Rs 1,17,00,00,000. Underwriting expenses Rs 54,00,00,000.
- Loss ratio = 117 ÷ 180 × 100 = 65%
- Expense ratio = 54 ÷ 180 × 100 = 30%
- Combined ratio = 95% — an underwriting profit of 5 paise per rupee of premium
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