Loss Ratio Calculator

Formula

The formula to calculate the loss ratio is:

\[ LR = \left(\frac{L}{EP}\right) \times 100 \]

Where:

$ LR $ is the loss ratio (%).
$ L $ is the total losses ($).
$ EP $ is the earned premium ($).

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.

Example Calculation

Consider an example where:

Total Losses (L): $500,000
Earned Premium (EP): $1,000,000

Using the formula to calculate the Loss Ratio:

\[ LR = \left(\frac{500,000}{1,000,000}\right) \times 100 = 50\% \]

This means that the loss ratio for this example is 50%.