Loss Ratio

AAA

DEFINITION of 'Loss Ratio '

The difference between the ratios of premiums paid to an insurance company and the claims settled by the company. Loss ratio is the total losses paid by an insurance company in the form of claims. The losses are added to adjustment expenses and then divided by total earned premiums. So if a company pays $80 in claims for every $150 in collected premiums, then the company has a loss ratio of 53%.

INVESTOPEDIA EXPLAINS 'Loss Ratio '

Loss ratios vary depending on the type of insurance. For example, for health insurance the loss ratio tends to be higher than for property and casualty such as car insurance. This is an indicator of how well an insurance company is doing. This ratio reflects if companies are collecting premiums higher than the amount paid in claims or if it is not collecting enough premiums to cover claims. Companies that have high loss claims may be experiencing financial trouble.


RELATED TERMS
  1. Loss Payee

    The party to whom the claim from a loss is to be paid. Loss payee ...
  2. Premium

    1. The total cost of an option. 2. The difference between the ...
  3. Insurance

    A contract (policy) in which an individual or entity receives ...
  4. Insurance Score

    A rating computed and used by insurance companies that represents ...
  5. Actuarial Risk

    The risk that the assumptions that actuaries implement into a ...
  6. Combined Ratio

    A measure of profitability used by an insurance company to indicate ...
Related Articles
  1. 15 Insurance Policies You Don't Need
    Insurance

    15 Insurance Policies You Don't Need

  2. Variable Vs. Variable Universal Life ...
    Retirement

    Variable Vs. Variable Universal Life ...

  3. Long-Term Care Insurance: Who Needs ...
    Home & Auto

    Long-Term Care Insurance: Who Needs ...

  4. Long-Term Care Insurance: You Have Options
    Options & Futures

    Long-Term Care Insurance: You Have Options

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
Trading Center