MEDICAL,USA: 1. The proportion between the cost to deliver health care and the amount of money taken in by the managed care plan. 2. The relative amount of insurance claims incurred to insurance premium monies received. An indicator used by insurance companies to measure the amount of benefits returned to policyholders. The formula for obtaining the ratio is incurred claims plus expenses divided by premiums. Low loss ratio indicates that the premiums collected were more than necessary to fund the actual claims. High loss ratio shows that claims exceeded the premiums for the given time period. Also known as incurred claims loss ratio, medical loss ratio (MLR), medical cost ratio , or paid claims loss ratio .
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A ratio determined by dividing the losses by the premiums paid. The losses can be either losses incurred or losses paid, and the premiums can be earned premiums or written premiums.
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Fraction calculated by dividing the amount of insured losses by the amount of Insurance premium, expressed as a percentage of the premiums. Various bases are used in calculating the loss ratio, which may apply to an Insurer’s entire operations, a particular type of Insurance, or a particular insured’s losses.
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REINSURANCE: Losses incurred expressed as a percentage of earned premiums.
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REINSURANCE: Proportionate relationship of incurred losses to earned premiums expressed as a percentage.
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US: Proportionate relationship of incurred losses to earned premiums expressed as a percentage. If, for example, a firm pays $100,000 of premium for workers compensation insurance in a given year, and its insurer pays and reserves $50,000 in claims, the firm’s loss ratio is 50 percent ($50,000 incurred losses/$100,000 earned premiums).
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US: The percent which losses bear to premiums for a given period. The ratio of claims to premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active life reserves.
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UK: the proportion of claims paid or payable to the premiums earned or written.
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The ratio of incurred losses including loss adjustment expenses to earned premiums. Loss ratios can be calculated on an accident year, calendar year, or underwriting year basis.
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UK: The ratio of losses paid and outstanding to premiums. The lower the loss ratio the more satisfactory the outcome and the greater the amount available for commissions, administration costs and profit.
Insurance Encyclopedia
Loss ratio coverage
—A form of stop loss reinsurance under which the reinsurer pays a portion of the claims represented by a loss ratio in excess of a specified loss ratio. For example, “20 percent in excess of 110 percent” will result in claims between 110 percent and 130 percent of premium being paid by the reinsurer.
Loss Ratio Method
Premium is adjusted on the basis of actual loss experience of the insurance company. Loss Ratio = (Losses + Loss Adjustment expenses) over the premium charged.
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Procedure for changing by uniform percentage the premium rates for several classes of closely related property or liability Insurance contracts in order to bring the combined actual loss ratio of these classes to the expected or permissible loss ratio for these classes. If “A” represents the combined loss ratio, and “E” the combined expected or permissible loss ratio, the loss ratio method calls for multiplying the premium rate of each Policy by the factor (A=E)/E. Compare with “Pure premium method.”
Loss Ratio Permissible
Highest loss ratio which permits an Insurer to earn its anticipated Underwriting profit. This ratio usually is computed as (losses incurred plus loss adjustment expenses)/earned premiums, but it also may be computed as (incurred losses plus loss adjustment expenses)/net premiums written.
Loss ratio reinsurance
See: stop loss.
Loss Ratio Stabilising Clause
See: “Reinsurance, Stop Loss.”
Loss Reduction
Any risk management technique, measure, or method designed to reduce the severity of accidental losses. Loss reduction should be distinguished from loss prevention, which includes risk management measures to reduce the frequency of accidental losses.
Loss Report
Agent’s written account of a claim or loss suffered by his client.
Loss reserve
An estimate of the value of a claim or group of claims not yet paid. A case reserve is an estimate of the amount for which a particular claim will ultimately be settled or adjudicated. Insurers will also set reserves for their entire books of business to estimate their future liabilities.
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UK: reserve or provision in accounts in respect of claims which have not been settled.
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US: The amount set up as the estimated cost of a claim. (See IBNR Reserve)
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The estimated liability, as it would appear in an insurer’s financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR) losses due but not yet paid, and amount not yet due. For individual claims, the loss reserve is the estimate of which will ultimately be paid out on that claim.
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The insurer’s estimated total liability for claims that have not yet been paid or losses that have occurred during a certain time frame. This amount usually also includes losses incurred but not yet reported, losses that are due but that have not been paid yet, and amounts that are not yet due.
Loss reserves
1. An amount set aside to provide for outstanding claims, reported and not reported. 2. A reserve deposited by a reinsurer with the reinsured to cover outstanding claims. It is often done by way of irrevocable letter of credit in connection with US treaties and contracts.
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The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.