Those of us who have been in the insurance industry for many years know what it is about and if you are reading this post, surely you too.

However, there are small details that must be taken into account when talking about Loss Ratio, as it needs to be calculated differently for different purposes depending on point of view. If we were to ask the accountant, the actuary or the head underwriter of the same company what the Loss Ratio was for the year 2021, each one would give a different answer according to their point of view.

In essence all three would agree on a common definition:

Loss Ratio = Incurred Claims divided by Earned Premiums‍

However, the CPA will take into account the run-off of claims from previous periods, while underwriting and reinsurance managers, for example, are interested in specific portfolios. Let’s see in detail how in InsFocus we deal with each “Time Base”:

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Accountant’s view

The accountant would calculate loss ratio taking into account increase / decrease of reserves – both claims’ reserves and unearned premium reserves (and also unexpired risk reserves).


The formula would look like this:

The above calculation of loss ratio reflects both current business and run-off of claims reserves of expired business.

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Underwriters’ view (also reinsurance manager’s view)

Underwriters need to see loss ratio that reflects the behavior of specific segments of their portfolio, and reflects underwriting decisions they make – such as changing rates, coverage terms and deductibles. Thus, they care less about run-off of expired business, but need to focus on current business. Reinsurers typically enter into agreements relating to specific portfolios and underwriting periods, thus ceding companies need to report to them based on underwriters’ point of view.

The formula would look like this:

Actuary’s view (also relevant to decision making executives)

To judge profitability and claim trends, as well as calculate reserves for certain lines of business, actuaries might want to compare incurred claims based on claim occurrence basis, compared to premiums on exposure basis (pro-rated to policy coverage periods).

This method is also useful in calculating and comparing loss ratios of agents or branch offices’ books of business.

The formula would look like this:

How is this handled in InsFocus analytic and reporting for insurance?

In InsFocus we have 5 different time bases (Accounting, Operation, Underwriting, Accident/Pro-rata, and Snapshot). “Time Base” is the terminology used by InsFocus to reflect the different points of view discussed above. The system contains more than 400 KPIs and metrics which are adapted to each of the time bases described above. That way InsFocus controls that reports generated do not mix metrics of different time bases – making sure users get correctly calculated results.

See this simple report and note that the loss ratio differs between time bases.