Loss Ratio

The Loss Ratio for a policy or group of policies is the percentage of claim payments based on the premium charged. For example, if the premium was £1000 and £600 of claims had been paid, the loss ratio would be 60%.

Loss ratios may calculated against the gross or net premium, and on a written or earned basis.

As loss ratios only take into account claim payments, they do not allow for commissions, insurer costs etc. Therefore a loss ratio must be significantly below 100% for an insurer to make an underwriting profit.