GAAP Combined Ratio is a financial metric used in the insurance industry to measure the profitability of an insurance company's underwriting activities. It is a metric used for financial accounting purposes, adhering to generally accepted accounting principles (GAAP).
The combined ratio comprises two components, the loss ratio and the expense ratio. The loss ratio measures the insurance company's incurred losses, including claims and adjustment expenses, divided by earned premiums. The expense ratio measures the company's policy acquisition costs, general and administrative expenses, and other costs, divided by earned premiums.
The combined ratio is an important metric to evaluate profitability as a ratio below 100% indicates the company is earning an underwriting profit, while a ratio above 100% indicates the company is underwriting at a loss.
The GAAP Combined Ratio normalized to 100 is used by insurance companies to represent the sum of the loss and expense ratios. This is the standard ratio that measures an insurance company's profitability. An overall combined ratio below 100% indicates profitability, while a combined ratio above 100% indicates losses.
Insurance companies use the GAAP Combined Ratio to evaluate the profitability of their underwriting business and to track performance over time. It is an important tool for management to make decisions around pricing, underwriting standards, and expense management. It is also a critical metric for investors and analysts to evaluate and compare insurance company performance.
GAAP Combined Ratio
Insurance Term
GAAP Combined Ratio is a financial metric used in the insurance industry to measure the profitability of an insurance company's underwriting activities. It is a metric used for financial accounting purposes, adhering to generally accepted accounting principles (GAAP).
The combined ratio comprises two components, the loss ratio and the expense ratio. The loss ratio measures the insurance company's incurred losses, including claims and adjustment expenses, divided by earned premiums. The expense ratio measures the company's policy acquisition costs, general and administrative expenses, and other costs, divided by earned premiums.
The combined ratio is an important metric to evaluate profitability as a ratio below 100% indicates the company is earning an underwriting profit, while a ratio above 100% indicates the company is underwriting at a loss.
The GAAP Combined Ratio normalized to 100 is used by insurance companies to represent the sum of the loss and expense ratios. This is the standard ratio that measures an insurance company's profitability. An overall combined ratio below 100% indicates profitability, while a combined ratio above 100% indicates losses.
Insurance companies use the GAAP Combined Ratio to evaluate the profitability of their underwriting business and to track performance over time. It is an important tool for management to make decisions around pricing, underwriting standards, and expense management. It is also a critical metric for investors and analysts to evaluate and compare insurance company performance.