How is the Combined Ratio After Dividends calculated?

The Combined Ratio After Dividends is a key performance metric used primarily in the insurance industry, reflecting the profitability of an insurance company's underwriting activities. To arrive at this ratio, you need to consider how much an insurance company pays out in claims (payouts), its operational expenses, and any dividends it has issued to policyholders.

The correct calculation takes into account all payouts, expenses, and dividends to provide a comprehensive picture of the company's cost structure relative to the premiums earned. By summing payouts, expenses, and dividends, and then dividing that total by the premiums, this formula captures the total burden of covering claims, running the business, and distributing profits to policyholders.

This method is crucial because it helps underwriters understand not just their direct costs but also what they are returning to policyholders through dividends. It ultimately provides insight into whether the insurer is operating profitably on its core insurance function after accounting for all obligations.

In this context, while other options may refer to different financial concepts or ratios, only the chosen option accurately integrates the necessary components to define the Combined Ratio After Dividends, thereby reflecting the true financial standing of the insurer concerning its policyholder obligations and earnings from premiums.