1. What is the Loss Ratio?

The Loss Ratio (LR) is a key metric in insurance that measures the percentage of premiums paid out as claims. It indicates the profitability of an insurance company's underwriting activities.

2. How Does the Calculator Work?

The calculator uses the Loss Ratio formula:

Where:

• \( Losses \) — Total claims paid (currency)
• \( Premiums \) — Total premiums earned (currency)

Explanation: The formula calculates what percentage of the collected premiums were paid out as claims.

3. Importance of Loss Ratio

Details: The loss ratio helps insurers assess their underwriting performance. A ratio below 100% indicates profitability, while above 100% suggests losses. Different insurance types have different target ratios.

4. Using the Calculator

Tips: Enter total losses (claims paid) and total premiums earned in any currency. Both values must be positive numbers, with premiums greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good loss ratio?
A: Typically, ratios below 60% are excellent, 60-75% are good, and above 75% may indicate underwriting issues. However, this varies by insurance type.

Q2: How does loss ratio differ from combined ratio?
A: Combined ratio includes both loss ratio and expense ratio, representing total underwriting costs as a percentage of premiums.

Q3: Can loss ratio exceed 100%?
A: Yes, this means the insurer paid out more in claims than it collected in premiums for that period.

Q4: How often should loss ratio be calculated?
A: Typically calculated quarterly or annually, but can be measured for specific periods or policy groups.

Q5: What factors affect loss ratio?
A: Underwriting standards, claims frequency/severity, pricing accuracy, and external factors like weather or economic conditions.