Which measure compares incurred losses to earned premiums?

Which measure compares incurred losses to earned premiums?

• A. Loss Ratios
• B. Expense Ratios
• C. Premium Ratios
• D. Loss-to-Premium Ratios

Answer: (A)

The main idea is how much of the earned premium is consumed by claims. This is the loss ratio, which compares incurred losses (claims that have happened plus reserves for future payment) to earned premiums (the portion of premiums that applies to the policy period). By dividing losses by earned premiums, you see what fraction of premium is spent on claims, indicating underwriting profitability: a lower loss ratio means more premium is left to cover expenses and profit, while a higher one means claims are eating up more of the premium. This measure also ties into the combined ratio, which adds the expense ratio (expenses per earned premium) to the loss ratio to gauge overall underwriting efficiency. Expense ratio looks at expenses, not losses, so it answers a different question, and the other term is just a less common way to phrase the same idea, whereas the standard term used is loss ratio.

The main idea is how much of the earned premium is consumed by claims. This is the loss ratio, which compares incurred losses (claims that have happened plus reserves for future payment) to earned premiums (the portion of premiums that applies to the policy period). By dividing losses by earned premiums, you see what fraction of premium is spent on claims, indicating underwriting profitability: a lower loss ratio means more premium is left to cover expenses and profit, while a higher one means claims are eating up more of the premium. This measure also ties into the combined ratio, which adds the expense ratio (expenses per earned premium) to the loss ratio to gauge overall underwriting efficiency. Expense ratio looks at expenses, not losses, so it answers a different question, and the other term is just a less common way to phrase the same idea, whereas the standard term used is loss ratio.