Loss ratio

Loss ratio

Loss Ratio in insurance is the ratio of total losses paid out in claims plus adjustment expenses divided by the total earned premiums. [Harvey Rubin, Dictionary of Insurance Terms, 4th Ed. Baron's Educational Series, 2000] If an insurance company, for example, pays out $60 in claims for every $100 in collected premiums, then its loss ratio is 60%.

Loss ratios for health insurance can range from 60% to 110%. [ [http://content.healthaffairs.org/cgi/reprint/16/4/176.pdf James C. Robinson, "Use And Abuse Of The Medical Loss Ratio To Measure Health Plan Performance", Health Affiars, vol 16, No. 4, pp 176 - 187, 1997] ] Loss ratios for property & casualty insurance (e.g. automobile insurance, typically range from 40% to 60%. [ [http://www.propertyandcasualtyinsurancenews.com/cms/NUPC/Templates/Breaking%20News/standard.aspx?NRMODE=Published&NRNODEGUID=%7B6C941448-1A7B-4219-B5F7-733B08C9025B%7D&NRORIGINALURL=%2Fcms%2Fnupc%2FBreaking%2520News%2F2007%2F01%2F08-CONSUMERS-dp&NRCACHEHINT=NoModifyGuest , Arthur D. Postal, " CFA Attacks Insurers For ‘Overcharging’", National Underwriter, Jan 8, 2007] ] . Overly low loss ratios are seen as evidence that an insurance company is overcharging and making excess profits. It is collecting much more in premiums than it needs to cover claims. Overly high loss ratios are seen as evidence that an insurance company is in poor financial health. It is not collecting enough premiums to cover claims, pay expenses and make a reasonable profit.

References


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  • loss ratio — loss ra·tio / rā ˌshō, rā shē ˌō/ n: the ratio between insurance losses incurred and premiums earned during a given period Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

  • loss ratio — n. the ratio between the losses incurred and the premiums earned by an insurance company during a specified time …   English World dictionary

  • Loss Ratio — The difference between the ratios of premiums paid to an insurance company and the claims settled by the company. Loss ratio is the total losses paid by an insurance company in the form of claims. The losses are added to adjustment expenses and… …   Investment dictionary

  • loss ratio — The total of the claims paid out by an insurance company, underwriting syndicate, etc. , expressed as a percentage of the amount of premiums coming in in the same period. For example, if claims total £2M and premiums total £4M, the result is a… …   Big dictionary of business and management

  • loss ratio — draudimo nuostolingumas statusas Aprobuotas sritis draudimo veikla apibrėžtis Išmokų sąnaudų ir uždirbtų įmokų santykis. atitikmenys: angl. loss ratio šaltinis Lietuvos Respublikos draudimo priežiūros komisijos 2004 m. spalio 1 d. nutarimas Nr. N …   Lithuanian dictionary (lietuvių žodynas)

  • loss ratio — loss′ ra tio n. bus the ratio of the losses paid by an insurer to premiums earned for a given period • Etymology: 1925–30 …   From formal English to slang

  • loss ratio — Terminology of insurers; a ratio arrived at by measuring losses incurred, plus loss adjustment expenses, incurred against premiums earned. See premium earned …   Ballentine's law dictionary

  • loss ratio — noun the ratio of the annual claims paid by an insurance company to the premiums received • Hypernyms: ↑ratio …   Useful english dictionary

  • loss ratio — noun Date: 1926 the ratio between insurance losses incurred and premiums earned during a given period …   New Collegiate Dictionary

  • loss ratio — Insurance. the ratio of the losses paid or accrued by an insurer to premiums earned, usually for a period of one year. [1925 30] * * * …   Universalium

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