Loss Ratio Calculator
Calculate the loss ratio — the percentage of premiums used to pay claims and adjustment expenses — to evaluate insurance underwriting profitability.
Total claims paid plus reserves for outstanding claims during the period.
Costs to investigate and settle claims (allocated + unallocated). Leave blank to calculate pure loss ratio.
Portion of written premiums corresponding to the expired part of the policy period.
Formulas
Pure Loss Ratio
Loss Ratio = Incurred Losses / Earned Premiums
Loss & LAE Ratio (Combined with Adjustment Expenses)
Loss & LAE Ratio = (Incurred Losses + Loss Adjustment Expenses) / Earned Premiums
Incurred Losses = Losses Paid + Change in Loss Reserves
Earned Premiums = Written Premiums − Change in Unearned Premium Reserve
A loss ratio of 60–70% is generally considered the industry benchmark for a profitable line of business, though this varies by line (e.g., workers' comp vs. auto vs. health).
Assumptions & References
- Incurred losses include both paid claims and changes in outstanding loss reserves (IBNR + case reserves).
- Earned premiums represent only the portion of written premiums attributable to the expired coverage period.
- Loss Adjustment Expenses (LAE) include both Allocated LAE (ALAE) and Unallocated LAE (ULAE).
- The loss ratio alone does not indicate overall profitability; the combined ratio (loss ratio + expense ratio) provides a fuller picture.
- A combined ratio below 100% indicates an underwriting profit; above 100% indicates an underwriting loss (which may still be offset by investment income).
- References: NAIC Glossary of Insurance Terms; Insurance Information Institute (III) — How the Insurance Industry Works; CAS Exam Study Notes on Ratemaking (Friedland, 2010).