Anonymizing Insurance Claims Data
What it takes to anonymize claims data, how that differs from pseudonymization and masking, and why removing names is only the start of the job.
Glossary
Combined Ratio Insurance
How the combined ratio measures underwriting performance, what its loss and expense components include, and why calendar and accident year figures differ.
The combined ratio in insurance measures underwriting performance by bringing together claims costs and the expenses of writing insurance. It is widely used in property and casualty insurance to assess whether the premium base is sufficient to cover those costs.
A ratio below 100% generally indicates an underwriting profit on the reported basis. A ratio above 100% indicates an underwriting loss. Investment income is measured separately.
What is the combined ratio?
An insurer incurs two broad sets of costs when it writes business. It must pay covered claims and the associated handling expenses, and it must pay to acquire and administer policies.
The combined ratio expresses those costs as percentages of premium and adds the percentages together. This makes it possible to compare underwriting results across periods or portfolios of different sizes, provided the calculations use comparable definitions.
The ratio is particularly useful because premium growth alone does not establish underwriting profitability. A company can write more policies and collect more premium while claims costs grow faster still.
How is the combined ratio calculated?
A common presentation is:
Combined ratio = loss and loss adjustment expense ratio + underwriting expense ratio
Where policyholder dividends are reported separately, a dividend ratio is added as well. These are dividends returned to eligible policyholders, not dividends paid to shareholders.
In the US statutory framework, the loss, loss adjustment expense, and policyholder dividend ratios generally use earned premium. The underwriting expense ratio uses written premium. NCCI sets out these components and their denominators in its financial ratio guide. NCCI’s combined-ratio formula.
This means a statutory combined ratio is usually a sum of ratios with different denominators. It should not automatically be rewritten as total costs divided by earned premium.
What are loss adjustment expenses?
Loss adjustment expenses, often shortened to LAE, are the costs of handling claims. They include activities such as investigation, defense, and settlement. An insurer may show them separately or include them within a broader loss ratio.
When reading a report, check whether the published loss ratio already includes LAE. Adding a separate LAE ratio to a figure that already contains those expenses would count them twice. The Insurance Information Institute uses an explicitly labeled loss and loss adjustment expense ratio in its industry tables. Insurance Information Institute’s underwriting measures.
Does the calculation use claims paid or incurred losses?
It generally uses incurred losses. For a calendar-year calculation, these reflect losses paid during the year plus the change in outstanding loss reserves. Reserves estimate the remaining cost of claims, including claims that have occurred but have not yet been reported. The ratio therefore includes estimates of future payments, not only money already paid. NAIC’s definitions of losses incurred and loss reserves.
Combined ratio example
Consider a fictional property and casualty insurer with the following annual results. For this example, net earned premium and net written premium are both $10 million, and there are no policyholder dividends.
| Component | Amount | Ratio |
|---|---|---|
| Incurred losses | $6,000,000 | 60% |
| Loss adjustment expenses | $800,000 | 8% |
| Underwriting expenses | $2,700,000 | 27% |
| Total | $9,500,000 | 95% |
The calculation is:
60% + 8% + 27% = 95%
Under these assumptions, the insurer has a $500,000 underwriting profit before investment results, tax, and other items outside the calculation.
If incurred losses increase by $1 million, with everything else unchanged, the loss ratio rises from 60% to 70%. The combined ratio becomes 105%, and the underwriting result becomes a $500,000 loss.
Why the premium denominator matters
Keep the original $6.8 million of losses and LAE and $2.7 million of underwriting expenses. Now assume written premium is $12 million while earned premium remains $10 million.
The statutory calculation becomes:
68% + ($2,700,000 ÷ $12,000,000 × 100) = 90.5%
Dividing all $9.5 million of costs by earned premium would instead produce 95%. The difference comes from the denominator, not a change in claims or expenses.
Some GAAP-based presentations use earned premium for both components, with acquisition expenses recognized on the relevant accounting basis. AIG, for example, explains its combined ratio using losses, LAE, and other underwriting expenses per $100 of net premiums earned. AIG’s ratio definitions.
What does a combined ratio below 100% mean?
Below 100% is generally a favorable underwriting result, but it does not measure the insurer’s total return.
Investment income, investment gains or losses, financing costs, and tax can affect the final profit figure. Equally, an insurer with a combined ratio above 100% may still report an overall profit if other income offsets its underwriting loss.
A reported ratio of 95% therefore should not automatically be described as a 5% net profit margin. It describes underwriting performance under a particular set of definitions.
For context, the NAIC reported a US property and casualty industry combined ratio of 92.9% for 2025, compared with 96.9% for 2024. Those are aggregate results for specific reporting years, not a universal target. NAIC’s 2025 industry analysis, page 1.
Why two combined ratios may not be comparable
The same label can describe different views of an insurance portfolio.
| Description | What to check |
|---|---|
| Gross or net | Whether reinsurance has been reflected in premiums, losses, and expenses |
| Calendar year | Whether the result includes changes to estimates for claims from earlier years |
| Accident year | Which year the loss events occurred in and when their costs were evaluated |
| Underlying or adjusted | Which items the insurer has removed from the reported measure |
| Statutory or GAAP-based | Which premium denominators and expense recognition rules apply |
For example, a reduction in reserves for older claims can improve a calendar-year result even if the newly written business has not become more profitable. The Hartford’s reporting definitions separately identify prior accident-year loss and LAE changes, illustrating why that distinction matters. The Hartford’s financial reporting definitions.
How insurers use the combined ratio
The combined ratio identifies where further investigation is needed. The individual components help explain what to investigate.
A high claims component may prompt a review of pricing, risk selection, claim severity, or reserve development. A high expense component may prompt a review of acquisition costs and administration. Looking only at the total can hide the difference.
Consider two portfolios with a 98% combined ratio. One has a 68% loss and LAE ratio and a 30% expense ratio. The other has an 80% loss and LAE ratio and an 18% expense ratio. Their totals match, but their cost structures differ substantially.
Reliable reporting therefore needs a connection between policy premium, claims, reserves, and financial records. A claims management system supplies operational claims information, while finance and actuarial teams determine the accounting treatment and reserve estimates used in the calculation.
Tracking the total alongside its components makes the combined ratio a useful explanation of underwriting performance, rather than an isolated percentage.
