Operating efficiency ratios

One of the key measures of operating efficiency of an insurance company is the combined ratio (COR), which is calculated for the property and casualty insurance sector (Section II).

The consistent improvement in the PZU Group’s combined ratio (for non-life insurance) in successive years arises, among others, from the correct matching of prices and insurance cover offered, the ability to maintain cost discipline (reduction in fixed costs in connection with releasing provisions from previous years, reduction in IT costs following from contract renegotiation and consistent management of remuneration costs for insurance intermediaries).

The improving combined ratio was also a result of the absence of major catastrophic events (such as floods, inundations and snow damage).

The operating efficiency ratios, broken down into individual segments, were presented in the Appendix.

Key profitability ratios

20132012201120102009*
Gross claims ratio (simple)
(gross claims paid / gross written premium) x 100% 
67.9% 76.2% 67.9% 75.2% 65.9%
Net claims ratio
(net claims paid / net premium earned) × 100% 
68.7% 76.3% 68.6% 73.1% 65.1%
Insurance activity expense ratio
(insurance activity expense / net premium earned) × 100% 
21.1% 21.5% 22.5% 24.0% 25.2%
Acquisition cost ratio
(acquisition expenses / net premium earned) × 100% 
12.4% 12.5% 13.2% 13.4% 12.7%
Administrative expense ratio
(administrative expenses / net premium earned) x 100% 
8.7% 9.0% 9.3% 10.6% 12.5%
Combined ratio in non-life insurance
(net claims + insurance activity expenses)/ net premium earned × 100% 
87.8% 92.8% 95.3% 104.5% 99.0%
Operating profit margin in life insurance
(operating profit / gross written premium) x 100% 
22.3% 19.8% 28.7% n/a n/a

*As of 2010 a change in the ABC indirect costs allocation model.

Source: PZU data.