1. What is Loss Ratio in Insurance?

The Loss Ratio is a key metric in insurance that compares the total claims paid out to the total premiums earned. It helps insurers assess the profitability of their underwriting activities.

2. How Does the Calculator Work?

The calculator uses the Loss Ratio formula:

Where:

• \( \text{Total Claims} \) — Sum of all claims paid out (USD)
• \( \text{Total Premiums} \) — Sum of all premiums collected (USD)

Explanation: The ratio shows what percentage of premium income is being paid out in claims. A ratio below 100% indicates profitability, while above 100% indicates losses.

3. Importance of Loss Ratio Calculation

Details: Insurance companies use loss ratios to evaluate underwriting performance, set premium rates, and make strategic decisions about product lines.

4. Using the Calculator

Tips: Enter total claims and total premiums in USD. Both values must be positive numbers, with premiums greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good loss ratio for insurance companies?
A: Typically, ratios below 60% are considered excellent, 60-75% good, and above 75% may indicate pricing or underwriting issues.

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

Q3: Should loss ratio be calculated per policy or overall?
A: It can be calculated at various levels - per policy, product line, or company-wide, depending on the analysis needed.

Q4: How often should loss ratios be calculated?
A: Typically calculated monthly, quarterly, and annually for financial reporting and business analysis.

Q5: Can loss ratio be negative?
A: No, since both claims and premiums are positive values, the ratio will always be between 0% and theoretically unlimited (though extremely high ratios indicate problems).