Assumed loss ratio is the expected amount of money that an insurance company may need to use pay for losses as a ratio of the total premiums that come in. These losses include expenditures on claim payouts and other losses the insurance company may have incurred. The loss ratio is calculated by adding the adjustments to the losses and then dividing this number by total of premiums.
Knowing the loss ratio of an insurance company is a great way to find out the status of the insurance company. Since this figure puts together the payments in claims and other losses of the company as well as the payments received by the company, the assumed loss ratio indicates whether the company is receiving more premiums than it is paying out in expenses. If a company has been losing a large amount of money relative to the money it receives, it may be having a hard time financially and may go bankrupt. Finally, it is important to note that the assumed loss ratio may be different for varied types of insurance.
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