Mississippi Property & Casualty Practice Exam 2025 – Comprehensive Prep Guide

The loss ratio in insurance is a key ratio that measures the relationship between the losses an insurer pays out and the premiums it collects. Specifically, it is calculated by dividing the total amount of losses paid (including claims and related expenses) by the total premiums earned during a specific period. This ratio helps insurers assess their underwriting performance and overall profitability. A lower loss ratio suggests that an insurance company is effectively managing its claims and generating adequate premium income, while a higher loss ratio may indicate that claims are exceeding the premiums collected, potentially leading to financial issues.

In the context of the other options, while the total number of claims filed is relevant for understanding claims activity, it does not inform about financial performance in relation to premiums. The average cost of claims per policy provides insight into individual claim costs but does not capture the broader relationship between total premiums and total claims. Additionally, assessing the effectiveness of policy marketing strategies is important for overall business strategy but is not directly related to the financial performance measure represented by the loss ratio. Therefore, focusing on the ratio that compares total losses paid to total premiums earned is crucial for evaluating the insurer's financial health in its core activities.