Loss ratio


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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.
References in periodicals archive ?
Spillover effects that benefit the general population do not disqualify a program from recognition under the medical loss ratio formula, as long as there are no additional costs to reaching noninsureds.
An insurer with 75,000 or more people enrolled in a plan for an entire calendar year is considered to have "fully credible" experience and will pay rebates based on its actual medical loss ratio without any credibility adjustment.
Gross incurred loss and loss adjustment expenses from column 26 of Schedule P Part 1 are used to compute the loss ratio (direct and assumed business) for each accident year.
The problem with carriers focusing on growth while sacrificing loss ratios is best shown by the following comparison:
For the named insureds in the lowest 10 percent of the credit scores, the relative loss ratio for their policies averaged 53 percent higher than expected, whereas for the named insureds in the highest 10 percent of the credit scores, the relative loss ratio averaged 25 percent lower than expected (where by construction, a relative loss ratio of one was the expected loss ratio over all policies without using credit scoring).
Now suppose that the eastern seaboard of Florida was in fact severely hammered by hurricanes to an unexpected degree in the third quarter, causing the actual loss ratios for the company and the CBOT pool to be 10 percent and 9 percent, respectively.
the third-largest writer in New Jersey, saw its adjusted loss ratio widen to 334.
6) For each state we provide evidence of R-squareds (-squared correlations) between firm loss ratios by line of business and this catastrophe loss ratio.
The large-group market came in with a loss ratio of 83.
Historic and forecast data on gross claims, paid claims, change in outstanding reserves, incurred loss, loss ratio percentage, commissions and expenses, combined ratio percentage and insurance fraud and crimes for the period 2009 through to 2018.
costs exceed the minimum medical loss ratio of total premium dollars.