Combined Loss Ratio Calculator

Formula

The formula to calculate the Combined Loss Ratio (CLR) is:

\[ \text{CLR} = \frac{\text{IL} + \text{ILAE}}{\text{EP}} \]

Where:

$ \text{CLR} $ is the combined loss ratio
$ \text{IL} $ is the incurred losses
$ \text{ILAE} $ is the incurred loss adjustment expenses
$ \text{EP} $ is the earned premiums

Definitions

Combined Loss Ratio (CLR): A key financial metric used in the insurance industry to assess the profitability of an insurance company. It is the sum of the incurred losses and incurred loss adjustment expenses divided by the earned premiums.
Incurred Losses (IL): The total amount of losses that an insurance company has incurred.
Incurred Loss Adjustment Expenses (ILAE): The costs associated with adjusting and settling claims.
Earned Premiums (EP): The total premiums earned by an insurance company for the coverage provided.

Example

Let's say the incurred losses are $500,000, the incurred loss adjustment expenses are $100,000, and the earned premiums are $1,000,000. Using the formula:

\[ \text{CLR} = \frac{500000 + 100000}{1000000} \]

We get:

\[ \text{CLR} = 0.6 \]

So, the combined loss ratio is 0.6 or 60%.