What is the formula for calculating the combined ratio?

The combined ratio is a crucial measure in insurance that helps assess the overall profitability of an insurance company. It is calculated by adding the loss ratio to the expense ratio. The loss ratio represents the proportion of incurred losses to the earned premiums, while the expense ratio reflects the percentage of premiums used to pay for operational expenses.

By summing these two ratios, the combined ratio gives a comprehensive view of the company's performance. A combined ratio below 100% indicates that the company is making an underwriting profit, while a ratio above 100% suggests an underwriting loss.

The other answer choices do not accurately reflect the formula for the combined ratio. The second option focuses specifically on profits and loss calculations but does not provide the comprehensive view of operational expenses and losses. The third option relates to how claims relate to premiums but doesn't align with the defined ratios in calculating the combined ratio. The final option includes expenses and reserves, which is not relevant to the combined ratio calculation. Therefore, the most accurate and relevant formula is achieved through the addition of the loss and expense ratios.