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Loss Ratio in insurance is the ratio of total amount paid out in claims plus adjustment expenses divided by the total earned premiums. For example, if an insurance company pays out $40 in claims for every $100 in collected premiums, then its loss ratio is 40%.
Actual Loss Ratio is the ratio of losses incurred to premiums earned actually experienced in a given line of insurance activity in a previous time period. The National Association of Insurance Commissioners’ (NAIC’s) annual statement blank defines loss ratio as “a measure of the relationship between A & H (accident and health) claims and premiums.”