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What is a loss ratio?

The loss ratio is a mathematical calculation that takes the total claims that have been reported to the carrier, plus the carrier's costs to administer the claim handling, divided by the total premiums earned (This refers to a portion of policy premium that has been used up during the term of the policy). For example, if an insurance company pays $60 in claims for every $100 in collected premiums, then its loss ratio is 60% with a profit ratio/margin of 40% or $40.The rate filings must include an actuarial certification that the benefits provided are reasonable in relation to the premium charged and must show the anticipated loss ratio.