Loss Ratio

Loss Reserve
Loss Reserve

The ratio between the premiums received by an insurance company and the expenses it incurs in settled claims, expressed as a percentage. For example, if an insurer pays out $50 in claims for every $100 it collects in premiums, its loss ratio is 50 percent (formula = losses divided by earned premiums). The lower the loss ratio, the more profit the insurer is making. Companies with very low loss ratios are often criticized for overcharging, whereas those with loss ratios that are consistently high may be in poor financial health. An optimum level seems somewhere in between.


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