Loss Ratio
The share of premium an insurer pays out in claims (losses and loss-adjustment expenses), as a percentage -- the larger of the two components of the combined ratio. It is driven by claims frequency and severity, and it spikes when a hurricane, wildfire, or a wave of large accident-year losses hits. A rising loss ratio is the direct evidence that the business the insurer wrote is turning out to be less profitable than it priced for. Because catastrophe losses are lumpy, insurers also show an "underlying" or ex-cat loss ratio to reveal the steady-state trend beneath the weather noise.
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