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📊 '''Loss ratio (LR)''' is a fundamental [[Definition:Underwriting | underwriting]] performance metric in the insurance industry, expressed as the percentage of [[Definition:Earned premium | earned premiums]] consumed by [[Definition:Incurred losses | incurred losses]] — including both paid [[Definition:Claims | claims]] and changes in [[Definition:Loss reserves | loss reserves]]. A loss ratio of 70%, for instance, means that for every dollar of premium earned, seventy cents goes toward covering claims. Virtually every [[Definition:Insurance carrier | carrier]], [[Definition:Reinsurance | reinsurer]], and [[Definition:Rating agency | rating agency]] worldwide treats the loss ratio as a primary lens through which to evaluate whether a line of business, portfolio, or entire company is writing risks at sustainable terms.

🔍 Calculation conventions vary by jurisdiction and accounting regime. Under [[Definition:US GAAP | US GAAP]], the loss ratio typically compares net incurred losses to net earned premiums, while under [[Definition:IFRS 17 | IFRS 17]] the presentation of insurance service results restructures how losses and revenue are disclosed, though the underlying analytical concept remains central. [[Definition:Lloyd's of London | Lloyd's]] syndicates and [[Definition:London market | London market]] participants often distinguish between an attritional loss ratio — reflecting expected, day-to-day claims activity — and the impact of large or [[Definition:Catastrophe loss | catastrophe losses]], which are analyzed separately. [[Definition:Reinsurance | Reinsurers]] scrutinize the loss ratio alongside the [[Definition:Combined ratio | combined ratio]], which layers in [[Definition:Expense ratio | expense ratio]] to provide a fuller picture of underwriting profitability. Actuaries decompose the loss ratio further into [[Definition:Loss development | development]] patterns, analyzing how initial estimates evolve over time as claims mature — a process especially critical in long-tail lines such as [[Definition:Liability insurance | liability]] and [[Definition:Workers' compensation insurance | workers' compensation]].

💡 Far from being a static historical statistic, the loss ratio drives real-time decision-making across the insurance value chain. When loss ratios deteriorate, [[Definition:Underwriter | underwriters]] tighten terms, increase [[Definition:Deductible | deductibles]], or push for [[Definition:Rate increase | rate increases]] at [[Definition:Renewal | renewal]]; when they improve, competitive pressure often follows as carriers pursue growth. [[Definition:Managing general agent (MGA) | MGAs]] operating under [[Definition:Delegated underwriting authority (DUA) | delegated authority]] are typically held to contractual loss ratio thresholds by their capacity providers, and breaching those thresholds can result in authority being curtailed or withdrawn. Investors evaluating [[Definition:Insurance-linked securities (ILS) | insurance-linked securities]] and [[Definition:Private equity | private equity]] backers funding new underwriting ventures both anchor their return models in projected loss ratios, making the metric as central to capital allocation as it is to day-to-day portfolio management.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Combined ratio]]
* [[Definition:Expense ratio]]
* [[Definition:Earned premium]]
* [[Definition:Incurred losses]]
* [[Definition:Loss reserves]]
* [[Definition:Underwriting profitability]]
{{Div col end}}

Definition:Loss ratio (LR) - Revision history

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