What is combined ratio in SAP FS-RI - Reinsurance?

SAP Term: combined ratio

• Component: FS-RI

• Component Name: Reinsurance

• Description: The sum of the loss ratio and expense ratio in relation % to the earned premium or to the recurring premium for a financial year. The difference between the combined ratio and 100% of the earned premium indicates whether the affected treaty has made a profit or loss.

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• Key Concepts: 
  Combined ratio is a measure used in the reinsurance industry to assess the profitability of a reinsurance contract. It is calculated by adding the loss ratio and the expense ratio together. The loss ratio is the ratio of incurred losses to earned premiums, while the expense ratio is the ratio of incurred expenses to earned premiums. 
  
  How to use it: 
  In SAP FS-RI Reinsurance, combined ratio is used to assess the profitability of a reinsurance contract. To calculate the combined ratio, first calculate the loss ratio by dividing incurred losses by earned premiums. Then calculate the expense ratio by dividing incurred expenses by earned premiums. Finally, add the two ratios together to get the combined ratio. 
  
  Tips & Tricks: 
  When calculating combined ratios in SAP FS-RI Reinsurance, it is important to ensure that all incurred losses and expenses are included in the calculation. This will ensure that an accurate combined ratio is calculated. 
  
  Related Information: 
  The combined ratio can be used to assess the profitability of a reinsurance contract and can be compared with industry benchmarks to determine if a contract is performing well or not. Additionally, it can be used to identify areas where improvements can be made in order to increase profitability.