What is Expense Ratio?

What is Expense Ratio?

After the loss ratio, Expense Ratio is the second critical ratio which is the percentage of expenses (other than paid claims) to the premium generated during the period. It assists companies in analysing the company’s efficiency; the lower the ER, the better the profitability.

Example of ER:

For an ER of 30%, it is assumed that for every \$100 of generated premiums, $30 will be paid in outlays.

Why is the ER important?

We generally consider these ratios critical for analysts to analyse the performance of an insurance company. It also assists analysts in comparing different insurance companies operating in the same market.