Definitions 1
Claims costs divided by earned premium
Loss Ratio
The profitability measure calculated by adding the loss ratio and expense ratio
Combined Ratio
Funds set aside to pay future claims, including known and unknown obligations
Reserves
Number of claims occurring within a given period
Frequency
Average cost per claim
Severity
Expenses directly tied to handling a specific claim, such as IMEs or attorney fees
ALAE (Allocated Loss Adjusted Expense)
Expenses incurred to operate the claims department, such as salaries and overhead
ULAE (Unallocated Loss Adjustment Expense)
Insurance that insurers buy to protect themselves from large or catastrophic losses
Reinsurance
The insurer's financial cushion, equal to assets minus liabilities
Surplus
Claims that have occurred but have not yet been reported to the insurer
IBNR (Incurred But Not Reported)