The loss ratio is a financial metric used by insurers to measure their profitability and risk exposure. It is calculated as follows:
Loss Ratio = (Total Claims Paid + Claim Handling Costs) / Total Premiums Earned
- Total Claims Paid are the aggregate amount the insurer has paid out for reported claims.
- Claim Handling Costs are the expenses incurred by the insurer during the process of claim settlement.
- Total Premiums Earned are the portion of the collected policy premiums used up during the policy term, representing the revenue the insurer has earned for providing coverage.