A loss ratio calculator is a tool used to determine the ratio between the losses incurred by an insurance company and the premiums it collects. This ratio is a key metric in the insurance industry and is used to assess the financial performance and profitability of an insurance company.
This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
To calculate the loss ratio, you need two pieces of information:
Incurred losses: This refers to the total amount of claims paid out by the insurance company over a specific period.
Earned premiums: This represents the total premiums collected by the insurance company during the same period.
The formula to calculate the loss ratio is as follows:
Loss Ratio = (Incurred Losses / Earned Premiums) * 100
Once you have the incurred losses and earned premiums values, simply divide the incurred losses by the earned premiums and multiply the result by 100 to get the loss ratio as a percentage.
In this example, the loss ratio is 40%, indicating that for every dollar of premium collected, the insurance company incurred 40 cents in losses.
Using a loss ratio calculator can help insurance companies evaluate their risk exposure, pricing strategies, and overall profitability.
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