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Loss Ratio

What is the Loss Ratio?

Broadly, three major ratios are widely used to identify the insurance company’s performance. A loss ratio is defined as the percentage of payouts or claims against the premium generated during the period. The loss ratio assists us in knowing the actual revenue left after paying out the claims.

Example of Loss Ratio, Expense Ratio and Combined Ratio:

Let’s consider a loss ratio of 60%. That means that for every \$100 of generated premiums, \$60 will be paid out in claims, and \\$40 is left to pay expenses and possibly earn profits.

Why is the Loss Ratio important?

These ratios are considered critical for analysts for analysing the performance of an insurance company. It also assists analysts in comparing different insurance companies operating in the same market.

Owais Siddiqui
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