Underwriting profit is not the same as overall profit. The combined ratio measures the sum of losses and expenses as a percentage of earned premium. A ratio below 100 percent indicates an underwriting profit; above 100 percent indicates an underwriting loss.

The ratio combines the loss ratio and the expense ratio into a single indicator of pure insurance operations. Investment income is excluded, so a company can still be profitable overall with a combined ratio modestly above 100 percent if investment returns are strong. Analysts and rating agencies watch the trend closely.

Different lines of business and different companies have different sustainable combined-ratio targets. Catastrophe losses can cause large temporary spikes. Management uses the ratio to judge pricing adequacy, expense control, and the success of underwriting initiatives over time.

• Sum of losses and expenses divided by earned premium
• Below 100 percent signals underwriting profit
• Excludes investment income
• Key metric for insurers and analysts