Loss Ratio
What Does Loss Ratio Mean?
The loss ratio is the percentage of total claims paid by an insurance company compared to the total premiums it received over the course of a year. This ratio indicates the company’s performance, showing whether it is collecting sufficient premiums to cover its obligations and operational expenses, or undercharging to the extent that it operates at a loss.
Insuranceopedia Explains Loss Ratio
For example, if an insurance company pays out $75 in benefits and adjustments while collecting $100 in premiums, the loss ratio would be 75%.
Loss ratios are useful for assessing not only the overall financial health of the insurance company but also for evaluating specific product lines. This figure helps identify which lines are operating more efficiently compared to others. In general, a loss ratio exceeding 100% suggests that the company may be facing financial difficulties.
