Insurance
Loss ratio
Claims as a share of premiums earned.
Facts checked against sources onWhat does Loss ratio mean?
The loss ratio is claims incurred (claims paid plus the change in reserves for claims still to be paid, often including the cost of handling claims) divided by premiums earned. Example: an insurer earns 100 of premium and incurs 65 of claims, so its loss ratio is 65 percent. It shows how well the insurer priced and chose its risks. In property and casualty (non-life) insurance it is added to the expense ratio to give the combined ratio. Health insurers use a related measure, the medical loss ratio.
Where does it come up in case interview prep?
- How insurance works and makes moneyLesson in Insurance: life, property and casualty, and health
- Insurance unit economics: the combined ratio at workLesson in Insurance: life, property and casualty, and health
- Insurance: players, trends, regulation, and how to crack the casesLesson in Insurance: life, property and casualty, and health
Related terms
- Expense ratio (insurance)An insurer's costs of selling and running policies as a share of premiums.
- Combined ratioLoss ratio plus expense ratio. Below 100 percent means an underwriting profit.
- Medical loss ratio (MLR)The share of health insurance premiums spent on medical care and quality improvement.
- ReinsuranceInsurance for insurance companies.
- Float (insurance)Premiums an insurer holds and invests before it pays claims.
- PersistencyThe share of policies still in force and paying after a set time.
- TakafulIslamic insurance built on mutual help, where members share each other's losses.
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