§ 04 · analysis · loss ratio
Loss ratio loss ratio & outliers.
Loss ratio (incurred claim over earned premium) is the fundamental measure of technical profitability in insurance. In healthy lines, the value oscillates between 0.4 and 0.7 with reasonable predictability. When it exceeds 1.0, the line pays more claim than it collects premium, and typically this points to an extraordinary event, pricing error, or both.
This page presents two complementary readings. The first is the state dispersion of Auto Hull line in 2024, an example of large-volume line with relatively predictable dynamics. The second is the monthly decomposition of line 196 (Named and Operational Risks) in 2024, an emblematic case of abrupt decoupling caused by catastrophic event, specifically the Rio Grande do Sul flood.
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How to read the 196 RS case
Loss ratio of line 196 in 2024 exceeded 4.0 in a single cut, a statistically extreme but true value, given the volume of claims paid for property destruction resulting from the flood. The jump begins in May, when the event materializes, and remains elevated for the rest of the year given the claim settlement period. In 2025 the loss ratio returns to levels close to historical, indicating that the event was indeed punctual and not structural.
Regulatory implications
Punctual catastrophic events do not invalidate the line's historical pricing, but evidence that reinsurance mechanisms and catastrophic reserves are essential for product sustainability. I should note that this analysis serves as methodological illustration, not as definitive assessment of the insurance market's capacity to absorb similar events, and whoever needs specific actuarial assessment should consult primary source and consider additional variables not in this study's slice.
Methods
Loss ratio is calculated as incurred claim / earned premium. Incurred claim includes claims paid in the period plus variation of IBNR (incurred but not reported); earned premium corresponds to direct premium prorated by temporal exposure. The state decomposition of earned premium uses Option L proration (direct premium share), detailed in methodology.