Enter the total losses and the earned premium into the calculator to determine the loss ratio. This calculator helps in understanding the profitability of insurance operations.
Loss Ratio Formula
The following formula is used to calculate the loss ratio:
LR = (L / EP) * 100
Variables:
- LR is the loss ratio (%)
- L is the total losses ($)
- EP is the earned premium ($)
To calculate the loss ratio, divide the total losses by the earned premium and then multiply by 100 to get a percentage.
What is a Loss Ratio?
A loss ratio is a measure used in the insurance industry to compare the losses incurred from claims to the income earned from premiums. It is expressed as a percentage and is a key indicator of an insurance company’s financial health. A high loss ratio can indicate that the company is paying out more in claims than it is receiving from premiums, which may not be sustainable in the long term.
How to Calculate Loss Ratio?
The following steps outline how to calculate the Loss Ratio.
- First, determine the total losses (L) in dollars.
- Next, determine the earned premium (EP) in dollars.
- Use the formula from above = LR = (L / EP) * 100.
- Finally, calculate the Loss Ratio (LR) in percentage.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem:
Use the following variables as an example problem to test your knowledge.
Total losses (L) = $50,000
Earned premium (EP) = $100,000
