Schadenquote

Schadenquote is a term used primarily in the insurance industry to describe the share of premium income that is consumed by claims and related costs. In German practice, it is often defined as the ratio of incurred loss and loss adjustment expenses to earned premiums. The numerator can include claim payments, claim handling costs, and adjustments related to reserves, depending on the accounting approach; the denominator is typically earned premiums or net premiums written.

Calculation and components: Schadenquote = (Schadenaufwendungen, including claim payments and handling costs) / (Beitragseinnahmen or erzielte Prämien). A higher Schadenquote indicates a larger portion of premium income being paid out for claims, reducing profitability. The figure may vary by line of business, geography, and portfolio mix, and is sometimes reported alongside other metrics such as the expense ratio or the combined ratio (which adds administrative and acquisition costs to the Schadenquote).

Applications and interpretation: The Schadenquote is used by insurers, reinsurers, analysts, and rating agencies to assess underwriting performance and pricing adequacy. It informs underwriting standards, reserve practices, and premium setting. A favorable trend would be a decreasing Schadenquote, all else equal, whereas a rising Schadenquote can signal higher claim costs, more severe losses, or inadequate pricing. It is important to distinguish it from the broader combined ratio, which includes operating expenses in addition to claims.

Limitations: The Schadenquote is sensitive to accounting methods, reinsurance arrangements, and the chosen denominator. It should be interpreted in context with other indicators and business mix to gauge overall profitability and risk.