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Loss Ratio

   Also found in: Dictionary/thesaurus, Medical, Acronyms 0.01 sec.
Loss ratio
The ratio of losses paid or accrued by an issurer to premiums collected over a year.

Loss Ratio
In insurance, the ratio of what an insurance company pays in benefits and associated expenses (such as adjustments) to what is collected in premiums, expressed as a percentage. It is calculated thusly:

Loss ratio = (Benefits paid out + Adjustment expenses) / Premiums collected

For example, if a company pays out $8,000,000 in benefits and adjustment and collects $10,000,000 in premiums, its loss ratio is 80%. Traditionally, the loss ratio has been used as a gauge for both an insurance company's financial health and whether it was overcharging policy holders. For example, a high loss ratio indicated that the company was not making a reasonable profit, while a low ratio showed that it was either charging too much or covering too little. However, this view has been criticized ? at least in relation to health insurance ? on the grounds that the integration of insurers and providers makes it difficult or impossible to calculate the ratio properly.


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? Mentioned in ? References in periodicals archive
 
As insurers know less about a new business risk than a renewed risk, it may take several years for new business loss ratios to reach the more favorable loss ratio levels of the renewal book of business.
``Their loss ratios were much higher, so combined, our loss ratio has gone up.
Softening motor insurance market conditions were evident as the loss ratio of the top 20 insurers increased in 2005.
 
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