Category: Capacity and rating · Reviewed by Amy Price, Account Executive · Last reviewed 2026-06-05
The loss ratio is the proportion of earned premium absorbed by claims (and allocated loss adjustment expenses) over a defined period. It is the principal underwriting performance indicator after the combined ratio, and is the headline number used in pricing analysis, reinsurance commission triggers and management reporting.
Category: Capacity and rating Also known as: claims ratio, incurred loss ratio Related concepts: combined ratio, expense ratio, sliding scale commission
The loss ratio is calculated as:
Loss Ratio = (Incurred Losses + ALAE) / Earned Premium
Where:
Loss ratios may be reported on accident year, underwriting year, calendar year or report year bases. The choice of basis materially affects the interpretation, particularly for long-tail classes.
Loss ratios are reported under IFRS 17 and FRS 103, and disclosed in Solvency II SFCRs and SF.05 quantitative reporting templates. They are not regulated per se but form the basis of regulatory loss ratio analysis at the PRA.
Loss ratios are routinely calculated at sub-portfolio level (by class, sub-class, territory, distribution channel) to inform pricing, capacity allocation and underwriting strategy. Significant deviations from expected loss ratios trigger pricing reviews, exposure management actions and (in extreme cases) class exits.
Loss ratios may be expressed gross (before reinsurance) or net (after reinsurance), depending on the analysis. Gross loss ratios are relevant for pricing adequacy assessment; net loss ratios are relevant for capital and shareholder return analysis.
Reinsurance commission triggers — particularly in sliding scale commission and profit commission calculations — are commonly based on cession-level loss ratios.
An illustrative example: a UK commercial property insurer reports a loss ratio of 62 per cent on its £200m portfolio for accident year 2024. The composition is: paid claims £85m, case reserves £30m, IBNR £8m, ALAE £1m — total £124m incurred against £200m earned premium. The loss ratio is in line with the insurer’s pricing target of 60–65 per cent.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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