Find the lists of loss, management expense, commission and combined ratio of non-life insurance companies

Mon, Apr 12, 2021 6:59 AM on Exclusive, Financial Analysis, Stock Market,

We are always in search of gold stocks when we are digging into the stock market. We analyze the companies from a different perspective. We look at various ratios, read the full annual report, ask opinions to our friends/mentors about the financial health of the company. However, it is always perplexing as to which ratios are suitable for different sectors. One ratio might work for one sector but not for the other sector.

On that note, analyzing the Financial sector can be one of the most daunting tasks for any investor. There are various different categories in the financial sector as well. One of them being Insurance companies.

So, in this article, we will be analyzing only one of the major indicators which investors can use to their advantage while analyzing Non-Life Insurance companies. The ratio is called the Combined ratio. The name speaks for itself since the combined ratio is made up of 3 other ratios; they are loss ratio, management expense ratio, and commission ratio.

To make investors clear on these ratios, Sharesansar took the data for the second quarter of FY 2077/2078.

The first ratio which contributes to the combined ratio is the Loss ratio. The loss ratio measures how much it is paying out in claims relative to how much it is earning in premium. The lower the ratio better the company’s profitability.

In the above table, the industry average in Q2, 2077/2078 stood at 61.53%. Rastriya Beema Company Limited (RBCL) has reported the lowest Loss ratio of 39.38% followed by IME General Insurance Limited (IGI) of 40.34%. The highest loss ratio is reported by United Insurance Company (Nepal) Limited (UIC) of 85.95%.

The second ratio which contributes to the combined ratio is the Management expense ratio. The management expense ratio tells investors how much the company is paying out in its management expenses relative to how much it is earning in premium. The lower the ratio better the deal.

As per the second-quarter report of the fiscal year 2077/2078, Neco Insurance Company Limited (NIL) reported the lowest management ratio with 31.56% of the total premium earned followed by Sagarmatha Insurance Company Limited (SIC) with 34.15%. The highest management expense ratio was reported by General Insurance Company Limited (GIC) with 96.69%.

The final ratio contributing to the combined ratio is the Commission expense ratio. This ratio is calculated by subtracting the re-insurance commission from the agent commission and dividing the final number by the net premium earned. This figure could be negative when the company earns more in Re-insurance commission than agent commission.

When all the 3 ratios are added, the combined ratio is formed which tells investors how profitable is the company in terms of the earning premium. Alternatively, a combined ratio of more than 100% means that an insurance company had more losses plus expenses than earned premiums. The table below shows the combined ratio of the second quarter of FY 2077/2078 of listed companies.

In the table above, you can see that the industry average for the combined ratio is 78.91%. There are altogether 9 companies that reported a combined ratio lower than the industry average. However, the lowest ratio is reported by Rastriya Beema Company Limited (RBCL) of 40.20% followed by IME General Insurance Limited (IGI) of50.65%. United Insurance Company (Nepal) Limited (UIC) has reported the highest ratio of 112.10%. This means that united insurance paid out its earned premiums in claims and operating expenses while its profitability was supported by investment income.

However, only the combined ratio does not provide the full picture of the company. So, investors have to consider other factors before investing in any company. Also, Investors should note that the numbers that we presented and the numbers that retail investors get could be different. It's all about how we interpret the numbers in the formula.


Every Ratio has its own Benefits and Limitations. The combined ratio in itself is not a perfect ratio but it can only be used with other ratios to come up to a conclusion. So, in this section we will be discussing what the limitations of the combined ratio are:

  • The combined ratio doesn't consider the investment income and other income earned by the company in the period which is a big part of the company's profitability
  • If the investors don't consider the necessary numbers in the expense ratio formula then the final data can be misinterpreted. 
  • It doesn't consider the qualitative aspect of the company