This section sets out the standard definitions of the Loss Ratio. Expense Ratio and Combined Ratio equivalent to those used internationally.
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Key points to note are that
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| | 1) | Combined Ratio = Loss Ratio + Expense Ratio |
| | 2) | A Combined Ratio in excess of 100% means a Gencral/Health Insurance Company is making Underwriting Losses. These may be mitigated by investment returns. |
| | 3) | These ratios must not be used for any Company writing material amounts of long term Protection & Savings business.
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For all three ratios the Denominator is the Net Earned Premium plus any other income other than that arising from investments:
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| Net Earned Premium (Form 21, Line 17, Column E) + |
| Other Underwriting Income (Form 21. Line 19, Column E) + |
| Other Income (Form 21, Line 71. Column E) + |
Other Income - Shareholders (Form 22. Line 19, Column A)
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If a Company has incorrectly treated movements in Premium Deficiency Reserves as part of its earned premium for accounting purposes, then it should reverse these movements out for the purposes of calculating its Standard Income Statements Ratios.
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For Loss Ratio, the Numerator is the Claims Incurred (in Form 21, Line 37, Column E), adjusted to exclude any changes in Premium Reserves, such as Premium Deficiency Reserves or Catastrophe Reserves.
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The adjusted Claims Incurred are then divided by the Denominator to determine the Loss Ratio.
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For the Expense Ratio, the Numerator is:
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| Commission Incurred (Form 21. Line 38, Column E) |
| Minus Reinsurance Commissions Earned (Form 21, Line 18, Column E) + |
| Policy Acquisition Costs (Form 21, Line 39, Column E) + |
| Other direct underwriting Expenses (Form 21, Line 40, Column E) + |
| Doubtful Debt Expense (Form 21. Line 41, Column E) + |
| Operational and Technical Expenses (Form 21, Line 51, Column E) + |
| Shareholders Expenses (Form 22, Line 39, Column A) + |
| Zakat (Form 22. Line 51, Column A) |
Taxes (Form 22, Line 52, Column A)
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The Combined Ratio is defined as the Loss Ratio + Expense Ratio
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