1. What is Loss Ratio?

The Loss Ratio is a key metric in insurance that measures the percentage of premiums paid out in claims and expenses. It helps insurers assess their underwriting profitability and operational efficiency.

2. How Does the Calculator Work?

The calculator uses the standard Loss Ratio formula:

Where:

• Incurred Losses — Total value of claims paid during the period
• Loss Adjustment Expenses — Costs associated with investigating and settling claims
• Earned Premiums — Portion of premiums that applies to the expired period of coverage

Explanation: The ratio shows what percentage of premium income is being spent on claims and expenses. A ratio below 100% indicates underwriting profit.

3. Importance of Loss Ratio

Details: Insurance regulators use loss ratios to monitor insurer solvency. Investors analyze them to assess company performance. Companies use them to price policies and manage risk.

4. Using the Calculator

Tips: Enter all amounts in USD. Earned premiums must be greater than zero. Typical values range from 50% (very profitable) to over 100% (unprofitable).

5. Frequently Asked Questions (FAQ)

Q1: What is a good loss ratio?
A: Generally, 60-75% is considered good for property/casualty insurers. Below 60% may indicate overpricing, above 100% indicates underwriting losses.

Q2: How does loss ratio differ from combined ratio?
A: Combined ratio includes both loss ratio and expense ratio (operating costs). Combined ratio below 100% indicates underwriting profit.

Q3: Why use earned premiums instead of written premiums?
A: Earned premiums represent the portion of coverage actually provided during the period, matching expenses to the correct accounting period.

Q4: How often should loss ratio be calculated?
A: Typically calculated quarterly and annually, but can be calculated for any period to monitor performance.

Q5: What factors can affect loss ratio?
A: Claims frequency/severity, pricing accuracy, reserve adequacy, fraud levels, and catastrophic events.