Pure Loss Ratio
Pure Loss Ratios are the percentage of premiums that are used to directly pay claims. For example, a loss ratio of 94 means that the insurer spends 94 cents of each $1 of premiums on claims.
Combined Loss Ratio
Expressed as a percentage, combined loss ratios are the sum of direct claims payments and direct insurance expenses divided by premiums. For example, a combined loss ratio of 100% would mean that an insurer paid out exactly the same amount of money in claims and related expenses as in took in as premium. Note: Certain expenses are “disallowed “ under Texas law.
Combined Loss vs Pure Loss
Residential loss ratios in both short and long term views illustrate the high expense of paying claims in Texas. In 10 of the past 20 years, Texas combined loss ratios have been over 100%. Because of substantial losses in some years, the average combined loss ratios measured over various periods exceeds 100%. The long-term losses are particularly serious in relation to other statutory duties required of insurers.