Loss Ratio

Loss ratio is a way insurance companies measure how much money they pay out in claims compared to the premiums they collect. It’s calculated by dividing the total claims paid by the total premiums earned, typically expressed as a percentage. For example, a loss ratio of 60% means that the company paid out $60 for claims for every $100 in premiums received. A lower loss ratio generally indicates better profitability, as the company retains more of the premium income. Conversely, a high loss ratio may suggest higher claims expenses, which could impact the company’s financial stability.