Insurance is a numbers game, and if there’s one figure that can make or break an insurer, it’s the combined ratio. While it might sound like industry jargon, this metric is a window into the financial soul of any insurance company. In 2025, as climate risk, digital transformation, and regulatory shifts redefine Australia’s insurance landscape, understanding the combined ratio is more relevant than ever—whether you’re a policyholder, investor, or just finance-curious.
What Is the Combined Ratio—and Why Does It Matter?
The combined ratio measures an insurer’s operational profitability, calculated as the sum of incurred losses and expenses divided by earned premiums. Simply put, it reveals whether an insurer is collecting enough in premiums to cover claims and operating costs. The magic number: a ratio under 100% means the insurer is turning a profit on its core business, while anything over 100% signals underwriting losses (before investment income).
- Loss Ratio: Claims paid out divided by premiums earned
- Expense Ratio: Administrative and operating costs as a percentage of premiums
- Combined Ratio = Loss Ratio + Expense Ratio
For example, if an insurer’s loss ratio is 65% and its expense ratio is 30%, the combined ratio is 95%—a sign of profitable underwriting. But a year like 2024, with record-breaking storms and bushfires, can easily push ratios above 100%, as Australian insurers like Suncorp and IAG have experienced.
2025 Trends: Why the Combined Ratio Is Under the Microscope
Several forces are putting combined ratios in the spotlight this year:
- Climate Change & Catastrophes: With the Insurance Council of Australia reporting $3.5 billion in catastrophe claims in 2024 alone, insurers are recalibrating risk models—and combined ratios are feeling the pressure.
- Regulatory Updates: APRA’s 2025 capital adequacy reforms require insurers to hold more capital if their combined ratio consistently exceeds 100%. This has led to tighter underwriting and more selective coverage in high-risk postcodes.
- Tech and Data Analytics: Advanced analytics are helping insurers price risk more accurately, aiming to keep combined ratios in check even as external pressures mount.
Insurers with consistently low combined ratios are not just profitable—they’re also better placed to offer competitive premiums and weather unexpected events. The flip side: sustained high ratios can lead to higher premiums, stricter claims handling, or, in extreme cases, market exits.
Reading Between the Lines: What Combined Ratios Mean for You
For consumers and investors, the combined ratio is more than an abstract accounting figure. Here’s why it matters:
- Premium Pricing: Insurers with higher combined ratios may hike premiums or restrict coverage. Recent hikes in North Queensland property insurance are a direct result of rising combined ratios due to cyclone risk.
- Financial Stability: A persistently high combined ratio can signal underlying problems. Insurers with ratios above 105% in 2024 have faced credit rating downgrades and increased regulatory scrutiny.
- Market Competition: When combined ratios are healthy industry-wide, competition heats up—good news for savvy buyers seeking better deals.
Investors should watch this metric closely. In 2025, ASX-listed insurers reporting a drop in their combined ratio (even by a few percentage points) have seen share price bumps, reflecting renewed confidence in operational discipline.
How to Track and Interpret Combined Ratios
Most insurers publish their combined ratios in half-yearly and annual reports. Here’s how to use them:
- Compare Year-on-Year: Is the ratio improving or deteriorating?
- Benchmark Against Peers: Is one insurer consistently outperforming others?
- Context Matters: A spike after a major catastrophe might be temporary, but sustained high ratios warrant caution.
For everyday Australians, understanding the combined ratio isn’t just for insurance nerds—it’s a practical tool for making smarter choices about where to place your trust, your premiums, and your investments.
