Combined Ratio in Insurance: What Australians Should Know in 2026

The combined ratio is a straightforward measure of an insurer’s core profitability. It shows whether an insurance company is collecting enough in premiums to cover the cost of claims and its operating expenses. The formula is simple:

Combined Ratio = Loss Ratio + Expense Ratio

• Loss Ratio: The percentage of premiums used to pay claims.
• Expense Ratio: The percentage of premiums spent on operating and administrative costs.

A combined ratio below 100% means the insurer is making an underwriting profit—its core insurance business is profitable before considering investment returns. A ratio above 100% signals that claims and expenses are exceeding premiums, resulting in an underwriting loss.

Example

If an insurer has a loss ratio of 65% and an expense ratio of 30%, the combined ratio is 95%. This indicates that for every dollar of premium collected, 95 cents go to claims and expenses, leaving a margin for profit. If the combined ratio rises above 100%, the insurer is paying out more than it earns from premiums, which can be a warning sign if it persists.

The combined ratio is under close scrutiny in 2026 due to several factors affecting the Australian insurance industry:

Climate and Catastrophe Risks

Australia continues to experience severe weather events, such as storms, floods, and bushfires. These events can lead to a surge in claims, pushing loss ratios—and therefore combined ratios—higher. When insurers face more frequent or severe catastrophes, their ability to maintain a healthy combined ratio is tested.

Regulatory Changes

Regulators are paying closer attention to insurers’ financial stability. In 2026, new capital adequacy requirements mean insurers may need to hold more capital if their combined ratio remains high over time. This encourages insurers to manage risk more carefully and avoid underwriting losses.

Technology and Data

Advances in data analytics and digital tools are helping insurers price risk more accurately and control costs. By using better data, insurers aim to keep their combined ratios in check, even as external pressures mount.

Understanding the combined ratio can help both consumers and investors make better decisions.

For Policyholders

• Premiums: If an insurer’s combined ratio is consistently high, it may need to increase premiums or limit coverage to stay financially stable. This can affect the affordability and availability of insurance, especially in high-risk areas.
• Claims Handling: Insurers under financial pressure may become stricter in assessing claims or adjust their terms and conditions.
• Stability: A healthy combined ratio suggests the insurer is well-managed and more likely to meet its obligations to policyholders.

For Investors

• Profitability: The combined ratio is a key indicator of an insurer’s core business performance. Investors often watch for improvements or deteriorations in this metric.
• Market Confidence: Insurers with lower, stable combined ratios are generally viewed as more reliable investments. If the ratio rises sharply, it can signal underlying issues and affect share prices.

Most major insurers publish their combined ratios in annual and half-yearly financial reports. Here’s how to use this information:

Compare Over Time

Look at how an insurer’s combined ratio changes from year to year. A rising ratio may indicate increasing claims or costs, while a falling ratio suggests improved efficiency or lower claims.

Benchmark Against Peers

Compare combined ratios across different insurers. Consistently lower ratios can point to better risk management or cost control, but it’s important to consider the insurer’s size, business mix, and exposure to high-risk areas.

Consider the Context

A temporary spike in the combined ratio after a major catastrophe may not be cause for concern if the insurer has a history of strong performance. However, a sustained high ratio over several years could indicate deeper problems.

Several factors can influence an insurer’s combined ratio:

• Claims Experience: A year with more natural disasters or large claims will increase the loss ratio.
• Operating Costs: Rising administrative or distribution costs can push up the expense ratio.
• Pricing and Underwriting: If premiums are set too low for the risks covered, the combined ratio will rise. Careful underwriting and risk selection help keep the ratio in check.
• Reinsurance: Insurers often buy reinsurance to protect against large losses. The cost and availability of reinsurance can affect the combined ratio, especially after major events.

With ongoing climate risks, regulatory changes, and evolving technology, the combined ratio will remain a key indicator of insurer health in 2026. Here are some practical tips:

• Check Insurer Reports: If you’re considering a new policy or reviewing your current insurer, look at their recent combined ratios.
• Ask Questions: Don’t hesitate to ask your insurer or adviser how they’re managing risks and costs.
• Stay Informed: Be aware that significant changes in the industry—such as new regulations or major catastrophes—can affect premiums and coverage.

The combined ratio is more than just an industry statistic—it’s a practical tool for understanding how well an insurer is managing its core business. In 2026, as Australia’s insurance landscape continues to evolve, keeping an eye on this metric can help you make smarter choices about your insurance and investments. Whether you’re a policyholder wanting peace of mind or an investor seeking stability, understanding the combined ratio puts you in a stronger position to navigate the year ahead.