What's in a number? - Combined Ratio
A number of people have asked us to explain why the Club has started to refer to two different numbers when we report the Combined Ratio numbers for the year end.
A proportion of the Club’s claims are incurred in currencies other than the US dollar. To mitigate the risk of currency rate movements on claims estimates, the Club holds an equivalent level of investments in each of those other currencies. So, as currency rates move, any resulting increases in claims levels are offset by gains in the corresponding investments, and vice versa.
During the last year, the US Dollar strengthened significantly against the Euro and Sterling, as well as against other currencies. The result was that the US Dollar-equivalent value of both claims and their matching investment assets reduced.
Because the Club has adopted International Financial Reporting Standards (IFRS), all currency gains and losses are reported in a single line in the financial statements. If the Club had been able to report the effect of currency movements in the claims and investments figures – as most of the International Group clubs are able to do - the results would have been as below, a better Combined Ratio but a lower investment return:
|Including Currency movements|