Loss ratio
The loss ratio is claims paid plus reserves divided by earned premium. It is the share of premium that goes back out as claims, and accuracy on every decision is what keeps it from drifting.
If an insurer earns $100 in premium and pays $65 in claims and reserves, its loss ratio is 65%. It is the biggest single driver of the underwriting result, and the first place decision accuracy shows up.
Why it matters
Every over-generous split, missed recovery and drifting reserve lands in the loss ratio. Because reserves are estimates, it can look healthy long after the wrong calls were made, until the money actually moves.
Related terms
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