Combined ratio

What is the combined ratio?

The combined ratio measures whether a general or health insurer makes money from underwriting, before counting its investment income. It adds two ratios: the claims ratio (claims incurred as a share of premium earned) and the expense ratio (commission and operating expenses as a share of premium written). A combined ratio of 95% means the insurer spent ₹95 on claims and costs for every ₹100 of premium, leaving an underwriting profit of ₹5. A ratio of 105% means an underwriting loss of ₹5, which must be covered by investment income.

The combined ratio is used for non-life business only. Life insurers are assessed on measures such as value of new business and embedded value instead.

How the combined ratio is calculated

Indian general insurers report the combined ratio on the IRDAI basis. ICICI Lombard's filings, for example, define it as:

Combined ratio = (net incurred claims ÷ net earned premium) + ((management expenses minus commission on reinsurance) ÷ net written premium)

The same filings define management expenses as direct commission plus commission on reinsurance accepted plus operating expenses related to insurance business.

The two halves use different denominators. Claims are matched to earned premium because a claim relates to the period of cover that has passed. Expenses are matched to written premium because commission and acquisition costs are incurred when the policy is sold.

Worked example (illustrative numbers)

• Claims ratio: 760 ÷ 950 = 80.0%
• Expense ratio: (330 minus 40) ÷ 1,000 = 29.0%
• Combined ratio: 109.0%

The insurer lost about ₹90 crore on underwriting. If it earned ₹150 crore of investment income on its reserves and capital, it still made an overall profit before tax.

Combined ratios in India

Most Indian general insurers run combined ratios above 100% and rely on investment income from their float. The IRDAI Annual Report 2024-25 shows the non-life industry with underwriting losses of ₹30,276 crore in 2024-25, against investment income of ₹48,112 crore and profit after tax of ₹13,154 crore. Public sector general insurers accounted for ₹18,366 crore of the underwriting loss.

At company level, ICICI Lombard reported a combined ratio of 102.8% for 2024-25, and 104.0% for April to September 2025. Combined ratios swing with catastrophe losses (floods and cyclones), motor third party claims inflation, and health claims trends. Since October 2024, long-term policies are accounted on a 1/n basis, which also changes reported ratios for insurers with large multi-year books.

What moves the combined ratio

• Pricing and risk selection. Underpriced motor or group health portfolios push the claims ratio up.
• Claims management. Fraud control, hospital network rates and surveyor efficiency all lower claims cost.
• Acquisition cost. Commission and dealer or partner payouts are the largest part of the expense ratio in retail lines.
• Reinsurance. Ceding more business earns reinsurance commission but gives away premium.
• Reserving. Changes to IBNR and claim reserves can move the claims ratio sharply in a single year.

What the combined ratio means for distribution

• Channel payouts sit in the expense ratio. When a general insurer's combined ratio is under pressure, commission and channel rewards are among the first costs reviewed. The IRDAI expense limit for general insurers (30% of gross written premium under the 2024 EoM regulations) caps the room available, and the September 2026 consultation paper proposed reducing it further.
• Portfolio quality is a distribution outcome too. A channel that brings high-claim group health or old-vehicle motor business can earn high commission on paper and still be loss-making for the insurer. Insurers increasingly price partner payouts by the loss ratio of the business brought in.
• Expect product-level discipline. Lines with combined ratios well above 100% (often group health and some motor segments) face tighter underwriting, higher prices or reduced partner payouts.
• For intermediaries: brokers and corporate agents that share claims data, prevent fraud and place well-matched risks help insurers' ratios and get better terms in return.