In insurance, the percentage comparing an insurer’s incurred losses with its earned premiums is the loss ratio.
Insurers generally calculate the ratio by dividing incurred losses, often including claims-related expenses, by earned premiums and expressing the result as a percentage. It helps analysts assess how much premium revenue is being consumed by claims. A lower loss ratio can indicate stronger underwriting results, although it does not by itself prove that an insurer is profitable.
The ratio is used across property, casualty, health, and other insurance lines, but the exact calculation can differ. Some reports use paid losses, while others include changes in reserves for claims that have happened but have not yet been fully paid.
The loss ratio is not the same as the expense ratio. The expense ratio measures operating costs against premiums. Adding the loss ratio and expense ratio produces the combined ratio, a widely used measure in property-and-casualty insurance. Investment income, taxes, and other items may still affect overall profit.