study

Question 1

loss ratio

Answer 1

Loss ratios help an insurer to determine if the business they are writing is profitable. Insurers need to determine if the company can pay for current losses out of current premium income.

Basic loss ratios can be determined by the following formula:
Losses ÷ Earned premium = Loss ratio
$100,000 ÷ $200,000 = 50% Loss ratio

Loss ratios that are under 100% mean that the insurer is making an underwriting profit. Conversely, loss ratios that exceed 100% mean that the insurer is losing money.

Question 2

Loss Cost

Answer 2

This is a factor which insurers use in calculating insurance rates. It represents the amount an insurer should collect to cover expected losses.