What does “loss ratio” indicate for an insurance company?

The term "loss ratio" is a key performance metric used in the insurance industry that specifically measures the relationship between the claims an insurance company pays out and the premiums it earns. It provides insight into how well an insurance company is performing financially in terms of underwriting and risk management.

When the loss ratio is calculated, it is done by dividing the total amount of claims paid during a specific period by the total premiums earned in that same period. A lower loss ratio indicates that the company is retaining more of its premiums and is more profitable, while a higher loss ratio can suggest that the company is paying out more in claims than it is earning in premiums, which may raise concerns about sustainability.

This makes "the relationship between claims paid and premiums earned" the correct definition of loss ratio, as it directly reflects the profitability and risk exposure of the insurer's core operations.

The other options provided refer to different metrics or aspects of an insurance company's performance. For example, total expenses divided by total income pertains to overall profitability but does not measure loss directly. The proportion of policies renewed indicates customer retention rather than financial performance related to claims and premiums. Lastly, the ratio of insured values to total claims is not a standard measure used in evaluating an insurance company's performance in