Every premium an insurer earns has to cover claims, running costs, and profit. Loss ratio shows how much of that premium is spent on claims alone. It guides pricing, rate reviews, and how UK regulators judge fair value to customers. Read on for the formula, examples, and how loss ratio differs from combined ratio.
A loss ratio is the percentage of earned premium an insurer pays out in claims and the costs of settling them. A 60 percent loss ratio means £0.60 of every £1 of premium covers claims. The rest pays for expenses and profit.
In insurance, loss ratio represents the balance between premium an insurance company takes in and claims it pays out. UK insurers often call it the claims ratio. It compares incurred losses against earned premium over a set period. Incurred losses cover claims already paid plus reserves for claims still open.
A low ratio means the insurer keeps more premium after claims. A high ratio means claims are eating into that premium, a possible sign of underpricing. Either way, it offers a fast read on financial health.
The video below explains loss ratio and what the figure signals.
To work out a loss ratio, you need three figures:
Here’s the formula:
(claims paid + loss adjustment expenses) ÷ earned premium × 100
Claims paid is the money an insurer hands to policyholders to settle valid claims. Loss adjustment expenses are the costs of investigating, verifying, and settling those claims. Earned premium is the share of premium that covers the period already passed, not the full amount written at the start. Premiums collected or written instead of earned can skew the result, especially for a growing book.
For a quick read, some drop the adjustment expenses and divide claims paid by earned premium alone. Use the full formula when both figures are to hand.
Here’s a sample calculation. An insurer earns £10 million in premiums, pays £5 million in claims, and spends £800,000 on adjustment expenses. The result is (£5 million + £800,000) ÷ £10 million × 100, or 58 percent.
Use the calculator below to test your own claims, expenses, and premium figures.
Loss ratio calculator
Enter your figures to calculate the loss ratio. (claims paid + loss adjustment expenses) ÷ earned premium × 100.
Insurers track the loss ratio across a whole book to catch underpricing early. It is a live risk for UK motor insurers, where claims costs are outpacing premiums.
Loss ratio comes in more than one form. The version you read depends on what it counts and how reinsurance is treated.
A gross loss ratio measures claims before reinsurance. A net loss ratio measures them after reinsurance recoveries, so it shows the risk an insurer keeps. On a heavily reinsured London Market book, the two can differ sharply. Brokers should check whether a results statement quotes the gross or the net figure.
The attritional loss ratio strips out major and catastrophe losses. It captures the everyday claims an insurer expects, which makes it a steadier guide to underwriting quality. For example, MS Amlin’s syndicate results showed a 42.5 percent attritional loss ratio and a 50 percent net claims ratio.
The medical loss ratio applies to health cover. It is mainly a US term, where rules force health insurers to spend a set share of premium on care or refund the difference. The UK has no direct equivalent.
Always check which version you are looking at. A gross figure and a net figure for the same book tell different stories. Compare them as if they match, and the result will mislead.
There’s no single good loss ratio. The right figure depends on the line of business and the insurer’s expense ratio. A higher loss ratio leaves less room for costs and profit, so each insurer sets its own target. Health lines tend to run higher than property and casualty.
The 100 percent mark is the quick test.
Expenses shift the target. An insurer with a low expense base can carry a higher loss ratio and still turn a profit. One with heavy commission and admin costs needs a lower ratio to break even. A high loss ratio isn’t always a problem, and a low one isn’t always a win.
UK benchmarks give a useful guide. FCA data shows claims costs at 54 percent of premium for motor insurance and 46 percent for home insurance in 2024. At Lloyd’s, the 2025 attritional loss ratio was 47.9 percent. Health insurers and specialist lines often run well above those levels.
Loss ratio looks only at claims. Expense ratio looks at the cost of running the business, such as commissions, salaries, overheads, and marketing. Add the two together and you get the combined ratio.
This is why a loss ratio below 100 percent doesn’t prove an insurer is profitable. Combined ratio is the real test of underwriting. Below 100 percent, the insurer makes an underwriting profit. Above 100 percent, it makes an underwriting loss and leans on investment income to stay in profit.
For a broker comparing carriers, the combined ratio shows whether the underwriting itself pays.
Lloyd’s shows how the pieces fit. In 2025 the market reported a combined ratio of 87.6 percent in the market’s full-year results. This kept underwriting in profit before any investment return. The figure includes an attritional loss ratio of 47.9 percent and an expense ratio of 35.6 percent. Major claims make up much of the rest.
The UK has no statutory minimum loss ratio. Unlike the US, where health insurers must refund customers if they spend too little on claims, UK rules set no fixed floor. Oversight splits in two:
The FCA publishes value measures data each year. Its headline metric, claims costs as a proportion of premium, is a loss ratio by another name. It shows how much of each premium pound customers get back as claims.
Here, the logic flips. The Consumer Duty and the FCA’s PROD 4 rules treat a very low loss ratio as a warning sign. If customers pay a lot and claim back little, the product may not be fair.
GAP insurance shows what this means in practice. The FCA found only 6 percent of GAP premiums were paid out in claims. Some firms took up to 70 percent in commission. Several firms paused GAP sales in early 2024 and resumed only after improving value.
The FCA’s fair value action shows what the regulator now expects. The concern was not new. A 2014 FCA study found a similar pattern, with around 10 percent of premiums returned as claims. The FCA’s more recent GAP figures read above 100 percent. This reflects the sales pause, when premiums fell while claims kept being paid.
Loss ratio reaches well beyond pricing. Insurers use it to compare one book against another and flag products that need a rate review. Regulators treat it as an early solvency signal. Investors, lenders, and rating agencies fold it into how they value a carrier.
A high loss ratio usually has one of three causes. Risk is underpriced, a run of catastrophe claims hits, or claims handling is slow and costly. The last is the most fixable. Strong claims operations, like those of the UK’s top insurance claims service providers, keep the ratio in check.
Brokers should check the basis before comparing two insurers or a client’s record. Look at whether it uses earned or written premium, incurred or paid claims, and what goes into the numerator. Inconsistent definitions can make two loss ratios look alike when the underlying numbers differ.
Loss ratio is a fast read on whether premiums are covering claims, but it is only the starting point. Combined ratio and the fair-value lens complete the picture. The market’s strongest brokers and underwriters read all three together. Many are featured among our picks for the top insurance industry icons.
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