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. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center