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📋 '''Loss and loss adjustment expense ratio''' is a key profitability metric that expresses the sum of [[Definition:Incurred loss | incurred losses]] and [[Definition:Loss adjustment expense | loss adjustment expenses]] as a percentage of [[Definition:Earned premium | earned premium]], giving [[Definition:Insurance carrier | insurers]] a comprehensive view of how much of every premium dollar is consumed by [[Definition:Claim | claims]] costs and the expenses of handling them. Unlike the simpler [[Definition:Loss ratio | loss ratio]], which may exclude adjustment expenses depending on how a company reports, this combined measure captures the full cost of delivering on the insurance promise—both the money paid to [[Definition:Claimant | claimants]] and the operational cost of getting there.

⚙️ To calculate the ratio, an insurer totals its [[Definition:Incurred loss | incurred losses]] (paid losses plus changes in [[Definition:Loss reserve | loss reserves]]) and adds both [[Definition:Allocated loss adjustment expense (ALAE) | allocated]] and [[Definition:Unallocated loss adjustment expense (ULAE) | unallocated]] loss adjustment expenses, then divides by net [[Definition:Earned premium | earned premium]] for the same period. A ratio of 75%, for instance, means that seventy-five cents of each earned premium dollar went toward losses and the cost of adjusting them—leaving twenty-five cents to cover [[Definition:Underwriting expense | underwriting expenses]], overhead, and profit. [[Definition:Actuary | Actuaries]] and financial analysts track this ratio by accident year, calendar year, and policy year to distinguish between current-period performance and the impact of [[Definition:Reserve development | reserve development]] from prior years.

📊 This ratio occupies a central place in the financial reporting ecosystem. When paired with the [[Definition:Expense ratio | expense ratio]], it forms the [[Definition:Combined ratio | combined ratio]]—the headline measure of [[Definition:Underwriting profit | underwriting profitability]] that investors, [[Definition:Rating agency | rating agencies]], and regulators scrutinize each quarter. A deteriorating loss and loss adjustment expense ratio can signal [[Definition:Underpricing | inadequate pricing]], adverse [[Definition:Loss development | loss development]], or emerging claim trends that demand corrective action. For [[Definition:Managing general agent (MGA) | MGAs]] and [[Definition:Program administrator | program administrators]] operating under [[Definition:Delegated underwriting authority (DUA) | delegated authority]], demonstrating a consistently favorable ratio is often essential to retaining carrier partnerships and securing additional [[Definition:Capacity | capacity]].

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Loss ratio]]
* [[Definition:Combined ratio]]
* [[Definition:Expense ratio]]
* [[Definition:Earned premium]]
* [[Definition:Loss adjustment expense]]
* [[Definition:Underwriting profit]]
{{Div col end}}

Definition:Loss and loss adjustment expense ratio - Revision history

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