Find the lists of the combined ratio of non-life insurance companies; Rastriya Beema and Prabhu Insurance leading interms of combined ratio

Investors look at lots of indicators while analyzing the financial health of the company. There are different ratios available in the financial statements which investors can derive and come to a conclusion. However, all the ratios do not match with all the companies. So, investors have to know beforehand which ratios will be compatible with the companies and how much information that ratio will provide to the investors.

In terms of Non-life insurance, investors look at all the important indicators but might miss one of the most important indicators which tell a lot about the company. The ratio is called a Combined ratio which tells investors how much the company is earning in premium relative to how much it is paying out in claims, and operating expenses of the company. Since this indicator considers only the premium earned by the company and neglects the investment income, this will help investors to find the best companies in terms of the insurer’s profitability.

So, for prospective investors who want to invest in Non-life insurance companies, this comparison could be a big advantage. 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.

The first ratio involved in the making of 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 stood at 51.79%. Rastriya Beema Company Limited (RBCL) has reported the lowest Loss ratio of 15.40% followed by Prabhu Insurance Company Limited (PRIN) of 38.83%. The highest loss ratio is reported by Lumbini General Insurance Company Limited (LGIL) of 70.58%.

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. Lower the ratio better the deal.

As per the fourth-quarter report of fiscal year 2076/2077, Neco Insurance Company Limited (NIL) reported the lowest management ratio with 30.17% of the total premium earned followed by Sagarmatha Insurance Company Limited (SIC) with 32.20%. The highest management expense ratio was reported by Sanima General Insurance Company Limited (SAICL) with 88.84%.

The final ratio contributing to the combined ratio is the Commission expense ratio. This ratio is calculated by subtracting the re-insurance commission from agent commission and dividing the final number by 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 fourth quarter of FY 2076/2077 of listed companies. 

In the table above, you can see that the industry average for the combined ratio is 70.95%. There are altogether 11 companies that reported a combined ratio lower than the industry average. However, the lowest ratio is reported by Rastriya Beema Company Limited (RBCL) of 45.56% followed by Prabhu Insurance company Limited (PRIN) of 48.51%. United Insurance Company (Nepal) Limited (UIC) has reported the highest ratio of 105.11%. 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.  

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