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