01 / The meaning
What it means.
A basic incurred-claims calculation divides incurred claims by earned premium for the same period. Incurred claims can include amounts already paid and estimates for unresolved claims. A business’s own claims experience report may use another convention, so confirm the method before comparing figures. Gross and net measures also differ in how reinsurance is treated.
Loss ratio is not the same as an insurer’s overall profit margin. Administration, distribution, investment results and other items sit outside a simple claims comparison. For a business owner, the figure can help explain renewal discussions, but a single large loss or immature claim estimate can distort a short period. It does not mechanically determine the next premium.
02 / Put it in context
A practical example.
Hypothetical example: A report uses $60,000 of incurred claims and $100,000 of earned premium, producing a 60% loss ratio. A large unresolved claim is later reassessed, changing the ratio even though no new incident occurs. The example illustrates calculation, not a target or price forecast.
This example illustrates the term. It does not predict a claim outcome.
03 / Read the detail
What to check.
- Confirm paid versus incurred claims and the premium denominator.
- Use comparable periods and gross or net reporting bases.
- Identify outstanding estimates and exceptional large losses.
04 / Start a useful conversation
A question for your broker.
What calculation basis explains the loss ratio shown in our renewal report?
05 / Connect the terms
Keep the meaning in context.
06 / Apply it to your business
Related insurance guides.
Further reading
Read the source guidance alongside the relevant policy wording.
General information only. This does not take into account your objectives, financial situation or needs. Before acting, consider whether the information is appropriate for you. Cover is subject to insurer acceptance and the policy terms, conditions, limits and exclusions. Read the Financial Services Guide and the relevant PDS (where applicable) and/or policy wording before deciding.
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