Glossary
Loss ratio
The share of premium an insurer pays out in claims, often including claim-handling costs; a key number in rate filings and profit reports.
The loss ratio measures how much of the premium an insurer collects goes back out in claims. It is incurred losses divided by earned premium, expressed as a percentage. Many reports include loss adjustment expenses, the cost of investigating and settling claims, in the numerator; that version is often called the loss and LAE ratio.
Example: an insurer earns $500 million in auto premium in a year and incurs $340 million in claims plus $40 million in claim-handling costs. Its pure loss ratio is 68% and its loss and LAE ratio 76%. Add the expense ratio, say 24% for commissions, salaries and advertising, and the combined ratio is 100, breakeven before investment income (hypothetical figures). "Incurred" losses include estimates for claims not yet paid, so a ratio can change as those reserves are revised.
Loss ratios explain much of what drivers see in their premiums. When repair costs, medical bills and lawsuit payouts rise faster than rates, loss ratios climb, and insurers cite the trend in a rate filing to justify increases. Regulators compare actual and projected loss ratios when reviewing those requests, and falling loss ratios can lead to rate cuts or dividends. See loss ratios and rate filings: how insurers justify an increase.
Last reviewed October 4, 2026