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 loss ratio is the ratio of net losses and loss adjustment expenses to net premiums earned.
ocean marine writers, who saw their adjusted loss ratios widen in 2012, are raising rates, according to A.
If the parameters in the simple model developed earlier do not vary over time, then the population R-squared between insurer loss ratios and the catastrophe loss ratio will equal the R-squared for unexpected changes in loss ratios.
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:
The way to avoid confounding the statistical analysis due to the possible correlation of company loss ratios with, both incurred losses and credit scores is to use a relative loss ratio FOR each policy, where relative loss ratio is defined as the loss ratio for the policy divided by the average loss ratio for the insurer issuing the policy.
For example, if people expected the first quarter's loss ratio to increase from 80 percent to 85 percent, then the contract price would increase from $20,000 to $21,000.
NFU Mutual's healthy loss ratio led the top 10 insurers for profitability
Two of the biggest increases in 2011's top 10 companies were NJM Insurance Group, which saw its adjusted loss ratio rise to 177.
The report arrives at its loss estimate by projecting premiums collected in the 12 states along with the federal multi-peril crop insurance (MPCI) program loss ratio for 2012.