How is the loss ratio defined?

The loss ratio is a key measure in the insurance industry that reflects the relationship between the losses an insurance company pays out and the premiums it collects. It is defined as the percentage of losses (including claims paid and incurred but not reported losses) to the premiums earned within a specific period.

A higher loss ratio indicates that a larger portion of the premiums is being used to pay for claims, which can be a concern for an insurer's profitability. Conversely, a lower loss ratio suggests that the insurer is effectively managing risk and retaining more of its premiums. This metric is crucial for evaluating the insurer's performance and financial health, as it directly influences underwriting practices and pricing strategies. The other options do not accurately describe the loss ratio, as they focus on different aspects of insurance operations, such as premium volume or broker expenses.