Glossarytaught in M5.03
Loss ratio
Also called claims ratio, incurred claims ratio.
Claims incurred as a percentage of premiums earned. An insurer whose claims incurred, the claims paid plus the change in reserves for claims still outstanding, come to ₹2,040 crore on ₹3,000 crore of earned premium runs a 68% loss ratio.
Pricing standards and claims inflation move the ratio. So does the mix of business. Motor third-party, health and crop insurance behave very differently, and a shift in mix moves the aggregate without any change in underwriting quality.
Behind the number is reserve adequacy. Under-reserving lowers today's loss ratio and raises tomorrow's, which is the general insurance version of borrowing profit from the future.
Prior-year reserve movements are disclosed, so read them.
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