1. What is Loss Ratio?

The loss ratio is a key metric in insurance that compares incurred losses to earned premiums. It measures an insurer's profitability by showing what percentage of premiums is paid out in claims.

2. How Does the Calculator Work?

The calculator uses the loss ratio formula:

Where:

• \( \text{Losses} \) — Total claims paid plus adjustment expenses
• \( \text{Premiums} \) — Total premiums earned during the period

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

3. Importance of Loss Ratio

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

4. Using the Calculator

Tips: Enter total losses and premiums in dollars. Premiums must be greater than zero. The result shows the percentage of premiums paid out in claims.

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 profitable, above 100% means paying more in claims than collecting in premiums.

Q2: How does loss ratio differ from combined ratio?
A: Combined ratio adds expense ratio to loss ratio, showing total underwriting expenses relative to premiums.

Q3: Why might loss ratio exceed 100%?
A: Due to unexpected catastrophic events, poor underwriting, or inadequate premium pricing.

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

Q5: Does loss ratio include investment income?
A: No, loss ratio only considers underwriting results. Overall profitability includes investment returns.