Final answer:
The combined ratio is calculated using the loss ratio and the expense ratio. These ratios demonstrate the costs of claims and operating expenses relative to the insurance company's earned premiums.
Step-by-step explanation:
The financial components used to calculate a combined ratio are the loss ratio and expense ratio. The combined ratio is an indicator of the profitability of an insurance company and represents the sum of incurred losses and operating expenses, divided by earned premium. The loss ratio pertains to the average person's claims, while the expense ratio covers the costs of running the company.
It's important to understand that the premiums earned and claims incurred represent money flow but are not directly used in the combined ratio calculation. Similarly, net investment income and underwriting profit, along with policyholders' surplus and net written premiums, are essential for understanding an insurance company's overall financial health but are not part of the combined ratio itself.