The loss ratio is an insurer's incurred claims expressed as a percentage of its earned premium. The combined ratio adds the expense ratio, the insurer's acquisition and operating costs as a percentage of the same premium, so it measures the result of underwriting before investment income: below 100% is an underwriting profit and above 100% is an underwriting loss.
This entry sets out the formulas and what each part includes, works through an illustrative calculation, explains the difference between accident year and calendar year ratios and the effect of reserve releases, and gives published combined ratios for the Lloyd's market, the US property and casualty industry, individual insurers, and published claims-to-premium figures for UK retail products.
The formulas and what each part includes
No single formula is used by every publisher, and each states its own definitions. Lloyd's describes its combined ratio, expense ratio and related measures as alternative performance measures that are not defined under UK GAAP and may not be comparable with similarly titled measures presented by other companies.1 The table sets out the measures Lloyd's and the Financial Conduct Authority publish, with their definitions.
| Measure | Formula | What it includes |
|---|---|---|
| Loss ratio (claims ratio) | Incurred claims divided by earned premium | Claims cost in the year including reserves for the claims incurred; the FCA's motor analysis counts claims handling costs as claims costs2 |
| Expense ratio | Operating expenses divided by earned premium | Acquisition costs, including commissions paid to intermediaries, and other expenses; in the FCA's motor analysis, not claims handling costs2 |
| Combined ratio | Incurred claims plus operating expenses, divided by earned premium: the loss ratio plus the expense ratio | Lloyd's uses claims incurred, operating expenses and earned premiums all net of reinsurance1 |
| Underwriting result | Earned premium less incurred claims and operating expenses | The same three items in money rather than as a percentage1 |
| Accident year ratio | The combined ratio before prior year releases | Claims occurring in the year only, excluding movements in the year on estimates for previous years1 |
| Attritional loss ratio | Claims less major losses and prior year movements, divided by earned premium | Residual claims, after major losses and prior year movements are taken out1 |
| Underlying combined ratio | The combined ratio excluding major claims | At Lloyd's, major claims are natural and non-natural catastrophe losses, net of reinsurance1 |
Incurred claims are not the same as claims paid. In Lloyd's syndicate accounts, the provision for outstanding claims covers the estimated ultimate cost of claims notified but not settled, together with related claims handling costs, and an estimate of claims incurred but not reported based on statistical methods.3 Incurred claims for a year are the claims paid plus the change in those provisions; the same accounts describe gross claims incurred as the estimated cost of all claims occurring during the year, whether reported or not, including related claims handling costs and adjustments to claims outstanding from previous years.3 Earned premium is the part of written premium recognised as earned according to the risk profile of the policy, with unearned premium relating to the unexpired terms of policies in force.3 A twelve month policy written on 1 October has earned about a quarter of its premium by 31 December, if earned evenly.
A worked example
The figures in this example are invented to show the arithmetic and do not describe any real insurer. They follow the same order as the formulas: premium first, then claims, then expenses.
| Item | Amount | Percentage of earned premium |
|---|---|---|
| Earned premium | £50.0m | 100.0% |
| Claims paid in the year | £18.0m | 36.0% |
| Increase in reserves for reported claims | £6.5m | 13.0% |
| Estimate of claims incurred but not reported | £5.5m | 11.0% |
| Incurred claims: loss ratio | £30.0m | 60.0% |
| Acquisition costs, including commission | £11.0m | 22.0% |
| Other operating expenses | £5.0m | 10.0% |
| Expenses: expense ratio | £16.0m | 32.0% |
| Claims plus expenses: combined ratio | £46.0m | 92.0% |
| Underwriting result (profit) | £4.0m | 8.0% |
Read per £100 of earned premium, the insurer in the example paid or reserved £60 for claims and spent £32 on acquiring and running the business, leaving £8 of underwriting profit. A combined ratio of 105% would mean £105 of claims and expenses for every £100 of premium, an underwriting loss of £5. The same combined ratio can come from different mixes: 92% could be a 70% loss ratio with a 22% expense ratio or a 50% loss ratio with a 42% expense ratio.
What a combined ratio under 100% means
Lloyd's glossary describes a combined ratio of 100% as breakeven before taking into account investment returns, and a ratio of less than 100% as an underwriting profit.1 The FCA uses the same arithmetic: where the sum of claims ratio and expense ratio exceeds 100% in a year, a firm will be making an underwriting loss.2
The ratio says nothing about investment income, other income or tax. An insurer collects premiums before it pays claims and invests the money in between, so its overall result can be better or worse than its underwriting result. The table compares the two in four years.
| Market and year | Combined ratio (%) | Underwriting result (millions) | Overall result as reported (millions) |
|---|---|---|---|
| Lloyd's market, 20204 | 110.3 | £(2,676) | £(887), result before tax |
| Lloyd's market, 20251 | 87.6 | £5,208 | £10,594, result before tax |
| US property and casualty industry, 20175 | 103.9 | $(22,459) | $38,717, net income |
| US property and casualty industry, 20255 | 92.9 | $68,742 | $150,551, net income |
In 2020 the Lloyd's market's underwriting losses were driven by £3,433m of claims arising from the COVID-19 pandemic, and excluding those losses its combined ratio was 97.0%.4 The NAIC's figures show the US industry with a combined ratio above 100% in 2016, 2017, 2022 and 2023 and positive net income in each of those years.5
In UK private motor, the FCA found that many insurers earn non-underwriting income, such as profit commissions on reinsurance contracts and fees and charges including credit hire referrals and premium finance. This income ranged from 9% to 13% of earned premiums across the reporting periods and largely covered the underwriting losses or accounted for the bulk of the profit made from motor insurance by most of the firms in the FCA's sample, before any investment income.2
Ten years of combined ratios
| Year | Lloyd's market (%) | US property and casualty industry (%) |
|---|---|---|
| 2016 | 97.9 | 100.5 |
| 2017 | 114.0 | 103.9 |
| 2018 | 104.5 | 99.1 |
| 2019 | 102.1 | 98.7 |
| 2020 | 110.3 | 98.7 |
| 2021 | 93.5 | 99.6 |
| 2022 | 91.9 | 102.5 |
| 2023 | 84.0 | 101.7 |
| 2024 | 86.9 | 96.9 |
| 2025 | 87.6 | 92.9 |
Lloyd's reported a combined ratio above 100% in each year from 2017 to 2020 and below 100% in each year from 2021 to 2025.41 Its major claims ratio, the share of net earned premium taken by major claims, was 5.8% in 2025, below its ten year average of 10.4%.1 The NAIC described 2025 as the US industry's strongest underwriting performance in over two decades: net premiums earned rose 5.5% while net losses and loss adjustment expenses fell 1.4%, and insured losses from US natural disasters were roughly $100 billion.5
The US property and casualty industry, 2025
The two columns of the ten year table are not like for like. Lloyd's figures come from pro forma financial statements, prepared so that the results of Lloyd's and its members can be compared as closely as possible with general insurance companies.1 The NAIC does not state the bases in this report; its 2025 ratios reproduce from its published totals when loss expenses are added to net losses and divided by net premiums earned, and when underwriting expenses are divided by net premiums written.5
| Ratio | Numerator | Denominator | Published ratio |
|---|---|---|---|
| Net loss ratio | Net losses incurred, 551,755, plus loss expenses incurred, 86,003 | Net premiums earned, 958,726 | 66.5% |
| Expense ratio | Underwriting expenses, 252,164 | Net premiums written, 976,779 | 25.8% |
| Policyholder dividend ratio65 | Dividends to policyholders, about $5.7 billion | Not stated | 0.6% |
| Combined ratio6 | The three ratios added together | 92.9% |
The NAIC's combined ratio also includes a policyholder dividend ratio of 0.6%, with dividends to policyholders of about $5.7 billion in 2025: 66.5% plus 25.8% plus 0.6% gives 92.9%.65
Inside one combined ratio: Lloyd's in 2025
The Lloyd's market, 2025
| Component | 2025 (%) | 2024 (%) |
|---|---|---|
| Attritional loss ratio | 47.9 | 47.1 |
| Major claims ratio | 5.8 | 7.8 |
| Prior year development | (1.7) | (2.4) |
| Expense ratio | 35.6 | 34.4 |
| Combined ratio | 87.6 | 86.9 |
| Underlying combined ratio (excluding major claims) | 81.8 | 79.1 |
The components add up: attritional claims of 47.9%, plus major claims of 5.8%, less a prior year release of 1.7%, plus expenses of 35.6%, give the combined ratio of 87.6%.7 Lloyd's attributed the rise in its expense ratio to higher profit commissions, including catch-up adjustments on prior underwriting years, increased acquisition costs associated with new business and the impacts of foreign exchange.1 Major claims totalled £2.4bn, against £3.2bn in 2024, and the Californian wildfires in the first quarter contributed approximately £1.6bn.1
Accident year and calendar year ratios
A calendar year ratio, the figure in a set of annual accounts, includes every change recognised in that year: claims from events in the year and any re-estimate of claims from earlier years. In Lloyd's syndicate accounts, adjustments to the amounts of claims provisions established in prior years are reflected in the financial statements for the period in which the adjustments are made.3 An accident year ratio isolates the current year. Lloyd's calculates it from net operating expenses and net incurred losses for claims occurring in the year, as a proportion of net premiums earned during the year, excluding movements during the calendar year on claims, expenses and premium estimates for previous years.1
In its reinsurance segment commentary, Lloyd's says releases are generally expected as claims estimates for older losses become more certain and margins for uncertainty are released.1 Reserving rests on projecting from past experience of the development of claims over time, the method behind claims triangulation, and the ultimate liability will vary as a result of subsequent information and events.3 A release lowers the calendar year ratio below the accident year ratio. A strengthening, where earlier estimates prove too low, raises it. The figure continues the invented example.
How a reserve release moves the calendar year ratio: an illustrative example
| Line of business | Gross written premium (£m) | Accident year ratio (%) | Prior year movement (%) | Combined ratio (%) | Underwriting result (£m) |
|---|---|---|---|---|---|
| Reinsurance | 20,053 | 88.8 | (3.2) | 85.6 | 2,046 |
| Property | 13,026 | 84.8 | (9.4) | 75.4 | 2,373 |
| Casualty | 14,682 | 98.6 | 2.2 | 100.8 | (87) |
| Marine, aviation and energy | 6,826 | 92.2 | 11.3 | 103.5 | (178) |
| Specialty | 3,250 | 95.5 | (8.9) | 86.6 | 275 |
Casualty's accident year ratio of 98.6% was below 100%, but strengthening of reserves for earlier years took its calendar year combined ratio above 100% and produced an underwriting loss; Lloyd's said direct casualty lines saw deteriorations overall due to a mixture of experience and updates to assumptions.1 Property's releases were driven by reductions in estimates relating to major catastrophe claims, particularly Hurricanes Beryl, Helene and Milton, and by favourable non-catastrophe experience, while the strengthening in marine, aviation and energy was primarily driven by reserve increases for Russia-Ukraine conflict losses.1 Lloyd's also reports results by underwriting year: under its three year accounting policy, the 2023 underwriting year of account closed at 31 December 2025 with an underwriting result of £5,482m.1
The US industry also benefited significantly from prior year reserve releases in 2025, with a one-year redundancy of $20.0 billion, after several years of diminishing releases that stemmed primarily from adverse development in commercial liability lines, driven by economic and social inflation.5
Individual insurers' accounts show the same effect. Beazley's claims ratio rose to 44.5% in 2025 from 43.1% in 2024 because of an overall strengthening of reserves relating to past service, which it said was offset by improved performance on current year losses; its net past service development was a net increase of $16.1m, after a net release in 2024.8 Beazley sets initial reserves to include a risk adjustment that may be released over time as and when uncertainty reduces, and its confidence level was at the 84th percentile at the end of 2025.8 Hiscox reported positive prior year development of $292.7m in 2025, against $145.5m in 2024.9
Why published ratios for the same business differ
Lloyd's published two combined ratios for its market in 2025: 87.6% in its Annual Report and 87.9% in its Aggregate Accounts, which aggregate syndicate annual accounts.13 The Annual Report's pro forma financial statements combine the aggregate of syndicate accounts with members' funds at Lloyd's, the Society of Lloyd's financial statements and any central adjustments, and the Aggregate Accounts refer readers to a reconciliation of the syndicate technical account to the Annual Report's line-of-business analysis in note 9 to those statements.13 The underlying combined ratio is 81.8% in one and 82.1% in the other.13
| Choice | Options | Example |
|---|---|---|
| Reinsurance | Gross, before reinsurance, or net, after reinsurance premiums and recoveries | Lloyd's combined ratio uses claims, expenses and premiums net of reinsurance1 |
| Claims handling costs | Counted in claims or in expenses | The FCA's motor analysis counts them in claims; the NAIC's net loss ratio includes loss expenses25 |
| Premium base | Earned premium or written premium | The NAIC's 2025 expense ratio reproduces against net premiums written and its loss ratio against net premiums earned5 |
| Discounting | Claims discounted for the time value of money, or undiscounted | Beazley's 2025 combined ratio was 77.3% discounted and 81.2% undiscounted8 |
| Expenses counted | Only expenses directly attributable to insurance, or all operating expenses | Beazley's 2025 expense ratio was 32.8%, and its total expense ratio including other expenses 41.1%8 |
| Period | Calendar year, accident year or underwriting year | Lloyd's reports on all three bases1 |
| Exclusions | All claims, or excluding major claims | Lloyd's underlying combined ratio leaves out major claims1 |
Under IFRS 17, Beazley calculates its combined ratio as insurance service expenses net of reinsurance recoveries, divided by insurance revenue net of reinsurance ceded revenue. This is on a discounted basis and excludes operating expenses that are not directly attributable, and Beazley states that a combined ratio under 100% indicates a profit on the insurance service result.8 Hiscox also reports its group combined ratio on an undiscounted basis: 87.8% in 2025, against 89.2% in 2024.9
A net ratio takes reinsurance out of both sides of the calculation. In Beazley's 2025 accounts, the claims in its claims ratio are net of $447.3m recoverable from reinsurers for incurred claims, and the revenue it divides by is after an allocation of reinsurance premium of $906.4m.8
UK retail figures from the FCA
The FCA publishes claims costs as a proportion of premium for retail general insurance products each year in its general insurance value measures, and describes the proportion of premiums paid out in claims as one possible indicator of the relationship between the price of risk and the total price.10
| Product | 2024 | 2025 |
|---|---|---|
| Motor | 54% | 59% |
| Home (buildings and contents combined) | 46% | 48% |
| Travel (annual European, annual Worldwide and single-trip stand-alone) | 31% to 37% | 44% to 48% |
| Gadget (FCA commentary, all) | 42% | 36% |
| GAP (stand-alone): the FCA says these figures should still be used with caution and may not yet be representative of product value or performance | 104% | 53% |
Across all products in the 2025 data, excluding GAP insurance, the proportion ranged from 17% for wedding and party insurance to 68% for healthcare cash plans.10 Motor premiums fell by 7% in 2025 while the average number of policies in force rose by 4%, and the FCA notes that a time lag between the new business price and the point when a claims payout is recorded can influence the figures when prices or claims costs are moving rapidly.10
In the FCA's 2025 motor claims analysis, aggregated data from 11 firms showed claims ratios of 67% to 93% across 2019 to 2023 and expense ratios averaging between 20% and 23%, with underwriting losses in 2022 and 2023.2 The FCA added that for claims which take longer to develop and settle, such as large bodily injury claims, reserves may be understated for more recent years.2
| Year | Average written premium, net of insurance premium tax (£) | Claims cost per policy (£) |
|---|---|---|
| 2019 | 443 | 309 |
| 2020 | 440 | 236 |
| 2021 | 418 | 278 |
| 2022 | 427 | 360 |
| 2023 | 545 | 391 |
Claims cost per policy is the FCA's notified claims cost, including reserves for claims not yet settled, divided by average policies in force, so the two columns are not a loss ratio. They show the timing the FCA described: the increase in average premiums in 2023 lagged behind the trend of significantly increasing claim costs in 2022, and the average claim cost rose 37%, from £2,410 in 2019 to £3,293 in 2023.2
Loss ratios in delegated authority
Lloyd's glossary describes a binding authority as an agreement under which a managing agent delegates its authority to enter into contracts of insurance to a coverholder.1 Delegated authority arrangements such as coverholder frameworks represent a high proportion of the distribution mix for the Lloyd's property class.1 Reporting under these arrangements is covered in the glossary entry on bordereaux.
The Prudential Regulation Authority's 2026 priorities letter said delegated authority business looks set to grow across the London Market, raising additional risks of inadequate pricing and reserving across the sector if not properly managed or overseen, and that firms should have strong oversight arrangements, including consideration of how they would exit unprofitable arrangements.11 The same letter observed a continuing softening underwriting cycle in many lines of business, which may place pressure on pricing, terms and conditions and reserving levels, and repeated its concern that some firms are making assumptions in their internal models about future underwriting performance that are overly optimistic compared to their underwriting track record.11
Show References Hide References
- Lloyd's. Annual Report 2025. 2026.
- Financial Conduct Authority. Motor Insurance Claims Analysis. July 2025.
- Lloyd's. Aggregate Accounts 2025. 2026.
- Lloyd's. Annual Report 2020. 2021.
- National Association of Insurance Commissioners. U.S. Property & Casualty and Title Insurance Industries: 2025 Full Year Results. 2026.
- National Association of Insurance Commissioners. P&C, Title, and Life Industry Snapshots for the Period Ended December 31, 2025. 2026.
- Lloyd's. Lloyd's market delivers strong full year performance; very strong balance sheet; increased capital. Press release, 19 March 2026.
- Beazley plc. Annual Report 2025. 2026.
- Hiscox Ltd. 2025 Preliminary Results. 25 February 2026.
- Financial Conduct Authority. General insurance value measures data 2025. First published 21 July 2026.
- Prudential Regulation Authority. Insurance Supervision: 2026 priorities. Letter, 15 January 2026.
Frequently Asked Questions
What is a good combined ratio for an insurer?
None of the sources cited here sets a benchmark for a good combined ratio. The arithmetic gives one fixed point, 100%, the breakeven before investment returns, and results either side of it vary by line of business, by year and by the basis of calculation. Over the ten years to 2025, the NAIC's figures for the US property and casualty industry ranged between 92.9% and 103.9%, on a basis that includes a policyholder dividend ratio and measures expenses against written premium.
Some insurers publish their own targets for the mix of business they write. Beazley's 2025 annual report states an aim of a mid 80s undiscounted combined ratio across the cycle. In its 2025 preliminary results, Hiscox reported that its London Market business had delivered a sixth consecutive year of an undiscounted combined ratio in the 80s and its reinsurance business a third consecutive year in the 60s. Targets and results like these are stated on each insurer's own basis, so a comparison between two insurers needs matched definitions: gross or net of reinsurance, discounted or undiscounted, calendar year or accident year, with or without catastrophe losses, and with claims handling costs counted in the same place.
Does the loss ratio include loss adjustment expenses?
It depends on who publishes it. Loss adjustment expenses, the cost of investigating, handling and settling claims, can be counted in claims or in expenses. The FCA's motor insurance claims analysis counted claims handling costs in claims costs. The NAIC reports loss expenses incurred beside net losses incurred, and its 2025 net loss ratio of 66.5% for the US industry reproduces only when the two are added together.
In Lloyd's syndicate accounts, the provision for outstanding claims includes the provision for related claims handling costs as well as an estimate of claims incurred but not reported. Where one insurer counts claims handling costs as expenses and another counts them as claims, the first shows a lower loss ratio and a higher expense ratio for identical business, while the combined ratio is unchanged. The NAIC also publishes a pure net loss ratio by line of business (the report does not define whether loss expenses are included), which was 53.5% for US homeowners insurance in 2025, 52.6% for personal auto physical damage and 68.1% for personal auto liability. Before comparing loss ratios from two sources, check the definitions in each one: whether claims handling costs are in claims, whether figures are gross or net of reinsurance and whether the premium base is earned or written.
Can an insurer make a profit with a combined ratio above 100%?
Yes, when investment income and other income are larger than the underwriting loss, because the combined ratio measures underwriting only. The NAIC's 2025 report shows the US property and casualty industry with combined ratios of 102.5% in 2022 and 101.7% in 2023, and positive net income in both years. An insurer holds premiums between collecting them and paying claims, and invests them in the meantime. The NAIC's figures show the industry's investment yield at 3.56% in 2025, against 3.65% in 2024.
The two measures can also move in opposite directions. Lloyd's 2020 Annual Report records a combined ratio of 110.3%, underwriting losses of £2,676m and an investment return of £2,268m; after other items the market's result before tax was a loss of £887m. For 2025 the NAIC reported that the US industry's underwriting income jumped by over $40 billion, but that the gain was partially offset by lower investment income, driven by a significant drop in realised investment gains, resulting in a 10% decline in net income compared with 2024. A combined ratio on its own does not show whether an insurer made an overall profit in a given year; the investment result and other income are reported beside it.
What does the expense ratio include in insurance?
The expense ratio measures the cost of acquiring and running the business as a percentage of earned premium. The Lloyd's Annual Report gives its expense ratio as the ratio of net operating expenses to earned premiums net of reinsurance, so reinsurance changes the denominator as well as the costs counted. In 2020, acquisition costs were the larger part of the Lloyd's market's expenses: its 2020 Annual Report put acquisition costs at 26.1% of net earned premium, down from 27.5% in 2019, a fall it attributed to changes in business mix, within a total expense ratio of 37.2%, and said administrative expenses had remained stable as a percentage of net earned premium.
Accounting presentation changes what is counted. Beazley's expense ratio, which under IFRS 17 includes only expenses directly attributable to insurance activities, leaves out other costs: its 2025 annual report records non-directly attributable expenses of $426.0m that fall outside the insurance result. The publication matters too: the Lloyd's market expense ratio for 2025 was 35.6% in the results announcement and 37.5% in the Aggregate Accounts. Beazley's total expenses for 2025, including those outside the insurance result, were $2,121.2m.
How are profit commission and delegated authority overseen in the London Market?
At Lloyd's, the managing agent that runs a syndicate can charge profit commission to the syndicate, and the Aggregate Accounts explain how it follows the year of account: where profit commission is charged by the managing agent, it will normally be fully paid once the year of account closes, normally at 36 months, and is generally accrued in accordance with the earned profit. Managing agents may make payments on account of anticipated profit commission before a year closes, restricted to the profit commission expensed in striking the level of interim profits declared. Commission paid to an MGA or coverholder is a separate arrangement set out in its own agreement.
For business written through coverholders and other delegated arrangements, the Prudential Regulation Authority's 2026 priorities letter said firms' strategies for using such arrangements are not always clear. Under its heading on exposure management, the same letter reported that in its exposure risk management reviews across the London Market, a number of firms need to improve data quality and standards and need to continue to invest in their systems, tools and models, and said that high-quality data remains fundamental to sound prudential risk management.
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