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💰 '''Paid loss ratio''' is a financial metric that expresses the proportion of [[Definition:Earned premium | earned premiums]] an [[Definition:Insurance carrier | insurer]] has actually disbursed in [[Definition:Claim | claim]] payments over a given period, excluding any amounts still held in [[Definition:Loss reserve | reserves]] for reported but unpaid claims or [[Definition:Incurred but not reported (IBNR) | incurred but not reported (IBNR)]] liabilities. Unlike the broader [[Definition:Incurred loss ratio | incurred loss ratio]], which incorporates reserve estimates alongside payments, the paid loss ratio captures only cash that has left the insurer's accounts, making it a more concrete — though potentially incomplete — measure of loss experience at any point in time.

📐 The calculation divides total [[Definition:Paid loss | paid losses]] (net of any [[Definition:Salvage | salvage]] or [[Definition:Subrogation | subrogation]] recoveries, depending on convention) by net earned premiums for the same period or [[Definition:Accident year | accident year]]. Because many lines of business — particularly [[Definition:Liability insurance | liability]] and [[Definition:Workers' compensation insurance | workers' compensation]] — involve long settlement tails, the paid loss ratio for a recent underwriting period will often appear artificially low compared to the incurred ratio, simply because claims have not yet been resolved and paid. Conversely, in short-tail lines such as [[Definition:Property insurance | property]] or [[Definition:Motor insurance | motor physical damage]], paid and incurred ratios converge more quickly. Analysts and [[Definition:Actuary | actuaries]] track the progression of the paid loss ratio across development periods using [[Definition:Loss development triangle | loss development triangles]], which helps distinguish between genuine profitability and mere timing effects. Regulatory and accounting regimes — whether [[Definition:Statutory accounting principles (SAP) | SAP]] in the United States, [[Definition:IFRS 17 | IFRS 17]] internationally, or [[Definition:Solvency II | Solvency II]] reporting in Europe — all require disclosure of paid claims data, though the presentation and supplementary metrics vary.

🔍 Monitoring the paid loss ratio alongside incurred metrics gives stakeholders a layered view of an insurer's performance. A wide gap between paid and incurred ratios may indicate significant reserve uncertainty, slow claims handling, or evolving case estimates — each of which carries different implications for financial health. [[Definition:Reinsurer | Reinsurers]] scrutinize paid loss ratios when evaluating [[Definition:Ceding company | cedants]], as rapid claim payments relative to premiums can signal either efficient [[Definition:Claims management | claims management]] or deteriorating risk quality. For investors and [[Definition:Credit rating agency | rating agencies]], trends in the paid loss ratio over successive development years serve as a reality check on management's reserving philosophy, revealing whether initial estimates were conservative, adequate, or deficient. In this way, the metric serves as a grounding counterpart to the more assumption-laden incurred figures.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Incurred loss ratio]]
* [[Definition:Loss development triangle]]
* [[Definition:Loss reserve]]
* [[Definition:Earned premium]]
* [[Definition:Combined ratio]]
* [[Definition:Accident year]]
{{Div col end}}

Definition:Paid loss ratio - Revision history

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