1. What is Loss Ratio?

The Loss Ratio is a key metric in insurance that measures claims and adjustment expenses compared to earned premiums. It indicates what percentage of premiums is being paid out in claims.

2. How Does the Calculator Work?

The calculator uses the Loss Ratio formula:

Where:

• \( \text{Claims Paid} \) — Total claims paid during the period (USD)
• \( \text{Outstanding Claims} \) — Claims incurred but not yet paid (USD)
• \( \text{Net Premiums Written} \) — Premiums written minus reinsurance (USD)

Explanation: The ratio shows what portion of premium income is being used to cover claims. A ratio below 100% indicates profitability, while above 100% suggests losses.

3. Importance of Loss Ratio

Details: Insurance companies use loss ratio to assess underwriting profitability, set premium rates, and evaluate business segments. Regulators monitor it to ensure insurer solvency.

4. Using the Calculator

Tips: Enter all amounts in USD. Claims paid and outstanding claims should be for the same period as the net premiums written. Ensure net premiums is greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good loss ratio?
A: Typically 60-75% is considered good for property/casualty insurers. Below 100% is generally needed for profitability.

Q2: How does loss ratio differ from combined ratio?
A: Combined ratio includes expenses and is calculated as loss ratio plus expense ratio.

Q3: What time period should be used?
A: Usually calculated annually, but can be done quarterly or for policy periods.

Q4: How do reinsurance recoveries affect this?
A: Net premiums written should already account for reinsurance ceded.

Q5: What if my ratio is over 100%?
A: This indicates claims exceed premiums, which may require premium increases or underwriting changes.