Profitability of an Insurance Entity on a Statutory Basis

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The profitability of an insurance entity on a statutory basis is generally gauged by its combined ratio and its operating ratio.

The combined ratio is a key metric that measures an insurance company's underwriting profitability. It is calculated by adding the company's loss ratio and expense ratio. The loss ratio is the ratio of losses paid out by the insurance company to premiums earned, while the expense ratio is the ratio of expenses incurred by the insurance company to premiums earned. A combined ratio below 100% indicates that the company is making an underwriting profit, while a ratio above 100% indicates that the company is making an underwriting loss.

The operating ratio, on the other hand, measures the efficiency of an insurance company's operations. It is calculated by dividing the company's expenses by its earned premiums. A lower operating ratio indicates better efficiency, as it means that the company is spending less on expenses relative to its premiums earned.

Therefore, by looking at the combined ratio and the operating ratio, analysts and investors can get a good sense of an insurance company's overall profitability and efficiency. Other ratios like the net ratio, gross ratio, and actual ratio are not typically used to gauge profitability on a statutory basis.