What is a good combined ratio in insurance?

A good combined ratio in insurance is below 100%, which means the company makes an underwriting profit on its core business operations.

What the Numbers Mean

• Under 100% (Good): The insurer collects more in premiums than it pays out in claims and operating expenses. A ratio in the 90% to 95% range is generally considered very strong and healthy.
• Exactly 100% (Break-Even): The company spends every dollar of premium it takes in on claims and overhead.
• Over 100% (Poor/Concerning): The insurer pays out more money in claims and costs than it takes in through premiums, resulting in an underwriting loss.

Why Above 100% Doesn't Always Mean a Loss

Even if a combined ratio is slightly above 100%, an insurance company can still be profitable overall. Insurers invest the premiums they collect in stocks, bonds, and other securities. Strong investment income can make up for an underwriting loss. However, a consistently high combined ratio points to poor pricing or poor risk management.

The long-term average combined ratio for the U.S. property and casualty (P&C) insurance industry hovers around 97% to 98%, with recent annual averages landing at 96.5% and strengthening further to 92.4%.

Understanding the Combined Ratio

The combined ratio measures an insurance company's underwriting profitability. It is calculated by adding the loss ratio (claims paid out) and the expense ratio (operating costs), then dividing by earned premiums.

• Below 100%: The insurer makes an underwriting profit (core operations take in more money than they spend).
• Above 100%: The insurer suffers an underwriting loss (paying out more in claims and expenses than it collects in premiums).

Even when the combined ratio is slightly above 100% (indicating a technical underwriting loss), insurance companies can still remain highly profitable overall. This happens because they generate substantial investment income by investing the premiums they hold before claims are paid out. You can read a detailed breakdown of these metrics on The Motley Fool.

A good combined ratio for an insurance company is under 100%, with the sweet spot for a healthy, profitable business typically landing between 90% and 95%.

The Combined Ratio measures an insurer's underwriting profitability by comparing the total money paid out for claims and operating expenses against the total premiums collected.

Understanding the Numbers

• Under 100% (e.g., 90%–95%): This is ideal. It means the company makes an underwriting profit, spending $0.90 to $0.95 on claims and costs for every $1.00 it earns in premiums.
• Exactly 100%: This is the break-even point where the insurer spends every dollar of premium on claims and administrative costs.
• Above 100% (e.g., 105%): This indicates an underwriting loss because the company pays out more in claims and expenses than it takes in from premiums.

Important Caveats

• Investment Income: A ratio above 100% does not automatically mean the company is losing money overall. Insurers invest the premiums they collect in stocks and bonds, and strong investment returns can offset underwriting losses.
• Industry Variations: What counts as "good" also depends on the line of insurance (such as auto versus long-term liability) and broader economic conditions like catastrophe losses or inflation.

The "80/20 rule" in insurance has two completely different meanings depending on whether you are talking about health insurance or homeowners insurance.

🏥 Health Insurance (Medical Loss Ratio)

In health insurance, the 80/20 rule (officially called the Medical Loss Ratio) requires health insurers to spend at least 80% of premium dollars on actual patient care and quality improvements.

• ✅ 80% on Care: Money spent on medical claims and quality.
• ⚠️ 20% Limit: Maximum allowed for administrative costs and profits.
• 💡 Rebates: Insurers must refund the difference if they fail this.
• 📊 Large Groups: The rule shifts to an 85/15 split for large employers.

🏡 Homeowners Insurance (Replacement Cost)

In property insurance, the 80% rule means you must insure your home for at least 80% of its total replacement cost to avoid penalties on partial claims.

• ✅ Full Coverage: Insure to 80%+ of rebuild cost for full payouts.
• ⚠️ Penalty: Underinsurance leads to reduced claim payouts (coinsurance penalty).
• 💡 Basis: Based on current labor and materials, not market value.
• 🗓️ Updates: Review limits annually or after major home renovations.

AIG's General Insurance calendar year combined ratio was 89.0% for the second quarter of 2026.

Q2 2026 Key Metrics

• Combined Ratio: 89.0% (a 30 basis point improvement from 89.3% in Q2 2025).
• Accident Year Combined Ratio, as Adjusted (AYCR): 88.1% (a 30 basis point improvement from 88.4% in the prior year quarter).
• Underwriting Income: $686 million (up 10% year-over-year).
• Catastrophe Charges: $210 million, or 3.4 loss ratio points.

You can read more details in the Q2 2026 Earnings Release on the SEC archives or via AIG Investor Relations.