Insurance Losses-to-Premiums Ratio

An Insurance Losses-to-Premiums Ratio is a financial performance ratio of an insurance company based on premiums earned and losses paid.

• Example(s):
  • …
• Counter-Example(s):
  • Benefit-Expense Ratio.
• See: Loss Cost.

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References

2020

• https://www.investopedia.com/terms/l/loss-ratio.asp
  • QUOTE: Loss ratio is used in the insurance industry, representing the ratio of losses to premiums earned. Losses in loss ratios include paid insurance claims and adjustment expenses. The loss ratio formula is insurance claims paid plus adjustment expenses divided by total earned premiums. For example, if a company pays $80 in claims for every $160 in collected premiums, the loss ratio would be 50%.
  • Key Takeaways
    • Loss ratio is the losses an insurer incurs due to paid claims as a percentage of premiums earned.
    • A high loss ratio can be an indicator of financial distress, especially for a property or casualty insurance company.
    • Insurers will calculate their combined ratios, which include the loss ratio and their expense ratio, to measure total cash outflows associated with their operating activities.
    • If loss ratios associated with your policy become excessive, an insurance provider may raise premiums or choose not to renew a policy.
    • If health insurers fail to divert 80% of premiums to claims or healthcare improving activities, they will have to issue a rebate to their policyholders.
  • … Related to loss ratios are benefit-expense ratios, which compares an insurer's expenses for acquiring, underwriting, and servicing a policy by the net premium charged. Expenses can include employee wages, agent and broker commissions, dividends, advertising, legal fees, and other general and administrative expenses (G&A). . …

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