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 ?
the second-largest writer of ocean marine in New Jersey, bucked the trend and its ocean marine adjusted loss ratio improved in 2012 to 76.
With an adjusted medical loss ratio of 72 percent based on 2010 premiums, Anthem would have had to pay a rebate of an estimated $5.
The reports will also include the computation of the medical loss ratios for each state and each coverage category.
As a result, the loss ratios for the 1990-1997 accident years reported in the 1998 schedule use losses that are more developed than the ones taken from the annual statements accident years 1998 through 2005.
Norwich Union and QBE saw the largest improvements in their loss ratios 15
Overall the results are quite similar to the results for the mean loss ratios.
The profitability of the top 10 accident and health insurers deteriorated in 2006 due to increases in loss ratios
The concern is that there may be systematic differences in firms' variances of loss ratios due to differences in the premiums earned in the line.
The average loss ratio of the top 10 UK motor insurers increased in 2007
In effect, the first way in which liability reforms enhance insurance profitability is by decreasing the influence that past high loss ratios have on current insurance pricing.
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Citing data that show a dramatic, industrywide improvement in loss ratios, State Fund this year called for an immediate, major decrease in an effort to save employers an estimated $1 billion.