What Does Loss Ratio Mean?
The loss ratio is the percentage of the total claims paid by an insurance company in relation to the total premiums received during the course of a year. This percentage represents how well the company is performing. It reflects whether the company is collecting enough premiums to meet its obligations and operational commitments or under charging to the point of operating at a loss.
Insuranceopedia Explains Loss Ratio
For example, if an insurance company pays out benefits and adjustments equaling $75 and collects $100 in premiums, the loss ratio would be 75%.
Loss ratios can be useful to assess not only the financial health of the insurqnce company, but also to evaluate specific lines. This figure would help identify which product line is operating at what efficiency level relative to the others. In general, a loss ratio exceeding 100% would indicate that the company is experiencing financial problems.