Glossary

Loss ratio

The share of earned premium an insurer pays out or sets aside for claims, shown as a percentage and used to judge profitability and set rates.

Also called: incurred loss ratio, claims ratio, pure loss ratio, loss and LAE ratio, direct loss ratio

The loss ratio compares claims with premium. The formula is incurred losses divided by earned premium, shown as a percentage. Incurred means claims paid plus the change in reserves for claims not yet paid. Some insurers include loss adjustment expense, the cost of investigating and settling claims, and say so. Say a company earns $100 million and incurs $62 million of losses. Its loss ratio is 62%.

In homeowners insurance the ratio swings with the weather. Among the ten largest homeowners groups in the NAIC's 2025 market share data, direct loss ratios ran from about 44% to about 75%, and a single hurricane or hailstorm year can push a regional insurer well above that. One year is not a verdict on an insurer, and a reading that leaves out catastrophe losses, often called ex-cat, is not comparable to one that includes them.

A loss ratio below 100% does not mean the insurer made money. Expenses come on top, which is why it is paired with the expense ratio in the combined ratio. Regulators use a target loss ratio in ratemaking: the share of each premium dollar the rates are designed to pay in claims after allowing for expenses and profit. Persistent loss ratios above that target are a common reason behind a rate increase. See the combined ratio: reading home insurer results and how home insurers make money, and lose it for the whole picture.

Last reviewed October 10, 2026

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Related terms

Combined ratio An insurer's loss ratio plus its expense ratio, where a result under 100% means premiums covered claims and costs and over 100% means an underwriting loss. Expense ratio The share of premium an insurer spends on commissions, salaries, marketing, taxes and other costs of selling and running its business, excluding claim payments. Underwriting profit What an insurer keeps from premiums after paying claims, claim-handling costs and operating expenses, before any investment income is counted. Direct premiums written The total premium on the policies an insurer issues itself in a period, counted when written and before any share is passed to reinsurers. Market share An insurer's portion of all premiums written in a given line, state and year, calculated by dividing its direct premiums written by the market total. Premium The price of a policy for its term, set by rebuilding cost, location, claims history, roof, deductible and other rating factors.

Related guides

The combined ratio: reading home insurer results What a combined ratio of 95 or 108 means for a home insurer, how net, direct and underlying versions differ, and why no single ratio proves a company is sound. Home insurance market outlook Where home insurance pricing stands in October 2026: insurers back in profit, reinsurance costs falling, rate increases slowing, and the risks that remain. How home insurers make money, and lose it Home insurers earn from underwriting and from investing premiums. How loss ratios, expenses and catastrophe years combined in 2023 to 2025 industry results. The Midwest's rising storm losses and rates How hail, tornadoes and derechos pushed up Midwest home insurance rates and deductibles, with NAIC 2025 market data and what to check at renewal. How insurers file rate increases with regulators A rate filing is an insurer's request to change its prices. What goes into one, how regulators review it, how to read an average increase and where to find it. Reading a home insurer's earnings report How to read a public home insurer's quarterly release or 10-K: homeowners combined ratio, catastrophe losses, reserve development and premium growth.