Loss Ratio
Net claims incurred as a percentage of net premiums earned; the primary underwriting performance metric
What is Loss Ratio?
Loss ratio is the percentage of premiums earned that an insurer pays out in claims. It shows how much of each unit of premium goes to customers as claims.
It is a core measure of underwriting quality: a high ratio means pricing or risk selection is not adequate.
How this KPI is measured
- Function
- Operations & Supply Chain
- Sub-function
- Portfolio Performance
- Industry
- Insurance
- Type
- Lagging
- Impact
- Financial control
- Unit
- %
- Measurement frequency
- Monthly / Quarterly
- Formula
- (Net claims incurred / Net premiums earned) × 100
How to calculate it
Divide net claims incurred by net premiums earned, and multiply by 100.
For example, if claims incurred were 65,000,000 and premiums earned were 100,000,000, the loss ratio is 65%.
Compare by product and by period, and note that claims from a given period can take years to settle, so estimates are updated over time.
Where it is used
Assessing underwriting
Check pricing adequacy.
Managing portfolios
Find unprofitable segments.
Setting reserves and rates
Plan.
How to improve it
Tips and common mistakes
- A very low loss ratio may mean prices are too high or claims are wrongly declined.
- Use with the expense ratio.
- Allow for delayed claims.
More Operations & Supply Chain kpi library
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