Loss Ratio

Percentage of each premium dollar an insurer spends on claims.


Proportionate relationship of incurred losses to earned premiums expressed as a percentage.


Incurred losses (including applicable IBNR) divided by the earned premium for an accounting or treaty period. Loss ratios can be calculated on an accident Year, calendar Year, or underwriting Year basis.


Target amount of ultimate claims to premiums received.  Used as the ultimate reserves for short-term products.  Loss Ratios should be set using historical experience from the business.  Loss Ratios are typically defined as incurred claims over earned premium. 

They may include the change in the ALR in the numerator or occasionally removed from the denominator.