USBR calculates the loss ratio by dividing loss

adjustments expenses by premiums earned. The

loss ratio shows what percentage of payouts are
being settled with recipients. The lower the loss
ratio the better. Higher loss ratios may indicate
that an insurance company may need better risk
management policies to guard against future
possible insurance payouts.
Loss Ratio = ( Loss Adjustments / Premiums
Earned )

Expense Ratio

USBR calculates the expense ratio of an insurance company by

dividing underwriting expenses by net premiums earned.
Underwriting expenses are the costs of obtaining new policies
from insurance carriers. The lower the expense ratio the better
because it means more profits to the insurance company.
Expense Ratio = ( Underwriting Expenses / Net Premiums
Written )

This figure just measures claims losses and operating expenses

against premiums earned. The lower the figure the better. The
combined ratio is the total of estimated claims expenses for a
period plus overhead expressed as a percentage of earned
premiums. A ratio below 100 percent represents a measure of
profitability and the efficiency of an insurance firms underwriting
Combined Ratio efficiency. Ratios above 100 percnet denote a failure to earn
sufficient premiums to cover expected claims. High ratios can
usually occur either because of underpricing and/or because of
unexpected high claims.

Ratio of Net
Written
Premiums to
Policyholder
Surplus

Combined Ratio = ( Loss Ratio + Expense Ratio )

This ratio measures the level of capital surplus necessary to
write premiums. An insurance company must have an asset
heavy balance sheet to pay out claims. Industry statuary surplus
is the amount by which assets exceed liabilities. For instance: a
ratio 0.95 -to 1 means that insurers are writing less than $1.00
worth of premium for every $1.00 of surplus. A ratio of 1.02-to-1
means insures are writing about $1.02 for every $1.00 in
premiums.

Profitability Ratios

Return on
Revenues

This figure determines the profitability of an insurance company

. It is the profits after all expenses and taxes are paid by the
insurance company.
Return on Revenues = ( Net Operating Income / Total
Revenues )

Return on
Assets

USBR calculates the return on assets by dividing net operating

income by Mean average assets. This figure shows the
profitability on existing investment securities and premiums. The
higher the return on assets the better the company is enhancing
its returns on existing liquid assets.
Return on Assets ( Net Operating Income / Mean Average
Assets )

This figure shows the net profits that are returned to

shareholders. The higher the return on equity, the more
profitable the company has become and the possibility of
enhanced dividends to shareholders.
Return on Equity
Return on Equity = ( Net Operating Income (less preferred
stock Dividends / Average Common Equity )

This is the return received on an insurance company's assets.

The investment yield is obtained by dividing the average
investment assets into the net investment income before income
taxes.
Investment Yield
Investment Yield = ( Average investment Assets / Net
Investment Income )

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