Which metric is commonly used to assess underwriting profitability?

Which metric is commonly used to assess underwriting profitability?

• A. Combined ratio
• B. Loss ratio
• C. Expense ratio
• D. Net investment income ratio

Answer: (A)

Underwriting profitability is measured by the combined ratio, which shows how much of each premium is consumed by claims and underwriting expenses. It is calculated by adding the loss ratio (claims and loss adjustment expenses relative to premiums earned) to the expense ratio (underwriting expenses relative to premiums earned). If the combined ratio is under 100%, underwriting is profitable because claims and expenses are covered by premiums; if it's over 100%, underwriting is losing money. This single metric directly assesses the efficiency of pricing and underwriting discipline, independent of investment income. The loss ratio alone only tells you how much of premiums goes to claims, not the costs of running the business. The expense ratio reflects the costs of underwriting, but not the claims experience. The net investment income ratio relates to the return on investments, not the profitability of underwriting activities. So the combined ratio best captures underwriting profitability.

Underwriting profitability is measured by the combined ratio, which shows how much of each premium is consumed by claims and underwriting expenses. It is calculated by adding the loss ratio (claims and loss adjustment expenses relative to premiums earned) to the expense ratio (underwriting expenses relative to premiums earned). If the combined ratio is under 100%, underwriting is profitable because claims and expenses are covered by premiums; if it's over 100%, underwriting is losing money. This single metric directly assesses the efficiency of pricing and underwriting discipline, independent of investment income.

The loss ratio alone only tells you how much of premiums goes to claims, not the costs of running the business. The expense ratio reflects the costs of underwriting, but not the claims experience. The net investment income ratio relates to the return on investments, not the profitability of underwriting activities. So the combined ratio best captures underwriting profitability.