Florida Insurance Licensing Practice Exam

The term "loss ratio" refers to the measure of losses paid out by an insurance company in relation to the premiums collected from policyholders. Specifically, it is expressed as a percentage, calculated by taking the total amount of claims (losses) that the insurer has paid and dividing it by the total premiums earned during a given period. This metric is crucial in assessing the profitability and efficiency of an insurance company; a high loss ratio may indicate that the company is paying out more in claims than it is receiving in premiums, which can raise concerns about its financial health and sustainability.

Understanding the loss ratio is essential for insurance agents and underwriters as it helps them determine pricing strategies and risk assessments. By analyzing loss ratios, companies can identify trends in claims and adjust their underwriting guidelines to ensure they remain financially viable while still providing adequate coverage to their insured clients.