Two figures in, a clear answer out. The loss ratio calculator uses loss adjustment expense, insurance claims paid and total premiums earned to produce loss ratio, applying the standard relationship for this problem in the order the calculation actually needs it.
What Is the Loss Ratio Calculator?
The loss ratio calculator takes loss adjustment expense, insurance claims paid and total premiums earned and turns them into loss ratio.
It is the kind of calculation you would otherwise do on the back of an envelope: mechanical, repeatable and easy to get subtly wrong without noticing.
How the Loss Ratio Figure Is Built
Each result is calculated from the ones before it, so the working is fully visible. That matters when the answer is going to be quoted to somebody else and you need to be able to explain where it came from.
The figures are exactly as good as the assumptions underneath them. Check the rates, the periods and the tax treatment before you rely on the result.
Reading the Result Sensibly
A small change in an input can move the result by much more than you would expect, particularly where the calculation divides by one of the figures you supplied. That is worth understanding before you rely on a figure.
For anything that will be committed to, write the inputs down beside the result. A number you can reproduce is worth far more than one you cannot explain.
A Worked Example
Working through an example, with loss adjustment expense set to 10, insurance claims paid set to 5, total premiums earned set to 2, the calculator returns loss ratio of 7.5. Substitute your own figures and the same steps produce the same kind of answer.
Frequently Asked Questions
What do I need to work out loss ratio?
Enter loss adjustment expense, insurance claims paid and total premiums earned. The calculator then works through the relationship and reports loss ratio.
What does the loss ratio actually calculate?
It takes loss adjustment expense, insurance claims paid and total premiums earned and converts them into loss ratio using the standard relationship for this problem. Each step is applied in turn, so every output is traceable back to the numbers you typed in.
How should I enter loss adjustment expense?
Use the value you actually have, in the unit shown next to the field. Enter every value in the same unit system. The calculator assumes the figures you supply are consistent, so it cannot correct a mistake that happens before the calculation starts.
Do I have to fill in every field?
Only the fields a particular result depends on. If you leave one blank, the results that need it simply show a note instead of a number, and everything else still works.
Is the answer exact?
It is as exact as the formula and the inputs allow. The method itself is the standard one for this problem, so the only sources of error are the figures you enter and the precision you ask for.