The loss ratio shows what portion of premium income is consumed by claims. A ratio of 70 percent means 70 of every 100 in earned premium went to claims (before expenses and reinsurance effects, depending on the exact definition used). Insurers and analysts watch it by product line and over time.
Key takeaways
- High loss ratios pressure profits and can push future premiums up.
- Very low ratios can mean soft claims experience, tight underwriting, or underpayment of legitimate claims; context matters.
- Combine it with expense ratios for a fuller picture of underwriting results.
- One bad catastrophe year can spike the ratio without meaning everyday pricing was wrong forever.