Loss Ratio
The percentage of earned premiums that an insurer pays out in claims and claims-related expenses.
What is Loss Ratio?
The loss ratio is a key measure of insurance company underwriting profitability, calculated as incurred losses plus loss adjustment expenses divided by earned premiums, expressed as a percentage. A loss ratio of 60% means the insurer pays $0.60 in claims for every $1.00 of premium collected. Insurers also track the combined ratio, which adds the expense ratio (underwriting and administrative costs) to the loss ratio — a combined ratio below 100% indicates underwriting profitability. Property and casualty insurers typically target loss ratios between 60% and 75%. Health insurers in the ACA individual and small-group markets must meet minimum medical loss ratio (MLR) requirements of 80% (rebating excess premiums if they exceed the limit).
Example
A property insurer collects $500 million in earned premiums in a given year and pays $320 million in claims and loss adjustment expenses. The loss ratio is $320M ÷ $500M = 64%. Combined with an expense ratio of 28%, the combined ratio is 92% — meaning the company earns $0.08 of underwriting profit for every $1.00 of premium, before investment income.
Source: National Association of Insurance Commissioners — Industry Data