What does the combined ratio in insurance indicate?

The combined ratio in insurance is a crucial measure for evaluating an insurer's operational performance and financial health. Specifically, it reflects the percentage of premium revenue that is spent on claims and operational expenses. It is calculated by adding the loss ratio (claims paid divided by earned premiums) to the expense ratio (operating expenses divided by earned premiums). A combined ratio below 100% indicates that an insurer is making an underwriting profit, while a ratio above 100% signifies an underwriting loss.

This measurement allows insurers to assess if they are effectively managing their claims and expenses in relation to the premiums they collect. Understanding the combined ratio helps insurers make informed decisions about pricing, underwriting, and managing their business to ensure profitability.

The other options address different aspects of insurance metrics, but only the first choice accurately encapsulates what the combined ratio specifically indicates in terms of revenue spent on claims and expenses.