Loss Ratio

What is the 'Loss Ratio '

The loss ratio is 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%.

BREAKING DOWN '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.


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RELATED FAQS
  1. What is the difference between the loss ratio and combined ratio?

    Learn about the loss ratio and combined ratio, what the two ratios measure and the main difference between the loss ratio ... Read Answer >>
  2. How does the combined ratio measure the financial health of insurance companies?

    Learn about the combined ratio, what the combined ratio measures and how it is used to measure the financial health of insurance ... Read Answer >>
  3. What is the expense ratio in the insurance industry?

    Learn about the expense ratio for insurance companies and the different methods of calculating it. The expense ratio is a ... Read Answer >>
  4. How can I use the combined ratio to compare insurance companies?

    Learn more about the combined ratio, what it measures and how to use it to compare insurance companies. Read Answer >>
  5. How do I calculate the combined ratio?

    Learn about the combined ratio and how it is calculated under a financial basis and a trade basis using the loss ratio and ... Read Answer >>
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    Read about the most important components of an insurance company business model, such as risk pricing, float investing and ... Read Answer >>
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