1. What is a Loss Ratio Calculator?

Definition: This calculator determines the loss ratio, which measures an insurance company's profitability by comparing incurred losses and adjustment expenses to earned premiums.

Purpose: It helps insurance professionals, analysts, and students assess underwriting performance and financial health of insurance operations.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• Incurred Losses — Total claims paid plus reserves for future payments
• Adjustment Expenses — Costs to investigate and settle claims
• Earned Premiums — Portion of premiums for which coverage has been provided

Explanation: The sum of losses and expenses is divided by earned premiums and multiplied by 100 to get a percentage.

3. Importance of Loss Ratio Calculation

Details: A lower ratio indicates better profitability. Ratios below 100% suggest underwriting profit, while ratios above 100% indicate underwriting loss.

4. Using the Calculator

Tips: Enter all amounts in the same currency. Earned premiums must be greater than zero. Results are expressed as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What's a good loss ratio?
A: Typically 60-75% is considered good in property/casualty insurance. Below 100% means premiums exceed losses.

Q2: How is this different from combined ratio?
A: Combined ratio adds expense ratio to loss ratio, including operational costs beyond claims.

Q3: Should I include investment income?
A: No, loss ratio focuses only on underwriting performance, not investment returns.

Q4: What time period should I use?
A: Typically one year, but can be calculated for any period if all figures match.

Q5: How do insurance companies use this ratio?
A: To price policies, evaluate underwriting performance, and make business decisions.