Loss ratio is incurred losses, with loss adjustment expense where stated, divided by earned premium. It indicates how much of premium is consumed by claims.
A rising loss ratio can reflect higher frequency, higher severity or longer-running claims whose reserves have been strengthened. Because legal expense is part of the cost of litigated claims, delays that extend defense spend can move the ratio.
Reading a ratio requires the same discipline as any other figure: the period, the basis of incurred losses and whether prior-year development is included.
Loss ratio is not a measure of underwriting quality on its own. It is an outcome that has to be interpreted against mix, pricing and reserve movements.
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