Loss Ratio Calculator
From claims paid and earned premium, compute the insurance loss ratio (claims ÷ premium).
Input Data
Results
At a glance:The loss ratio measures an insurer's underwriting performance: loss ratio = claims incurred ÷ earned premium × 100%. Lower means fewer claims paid, better underwriting profit; higher means more claims, thinner profit. Underwriting profit = 1 − loss ratio − expense ratio; loss + expense > 100% means underwriting at a loss (offset by investment income). Read with expense ratio and combined ratio.
Formula
Loss ratio = claims ÷ earned premium × 100%.
Underwriting profit margin = 100% − loss ratio − expense ratio.
$$\text{Loss Ratio} = \dfrac{\text{Claims}}{\text{Earned Premium}} \times 100\%$$$$\text{Underwriting Margin} = 100\% - \text{Loss Ratio} - \text{Expense Ratio}$$How to Use
- Enter the claims incurred/paid in the period.
- Enter the earned premium in the same period.
- View the loss ratio and underwriting profit margin (if expense ratio entered).
Earned premium HK$10,000,000 — loss ratio and underwriting by claims
| Claims | Loss ratio | Underwriting (expense 25%) |
|---|---|---|
| 5,000,000 | 50% | +25% (100−50−25) |
| 7,000,000 | 70% | +5% |
| 8,000,000 | 80% | −5% (loss) |
| 9,000,000 | 90% | −15% (loss) |
Case Studies
Case 1: Auto insurer underwriting
An auto insurer earned premium HK$10,000,000, claims HK$7,000,000, expense ratio 25%.
Loss ratio = 7,000,000 ÷ 10,000,000 = 70%; underwriting margin = 100% − 70% − 25% = +5%.
70% is a typical auto loss ratio; with a 25% expense ratio the underwriting still earns 5% before investment income — healthy. Sustained 70%+ with rising expenses would squeeze profit, signalling a price review.
Case 2: Catastrophe spikes the loss ratio
A property insurer earned HK$10,000,000, but a typhoon pushed claims to HK$9,000,000, expense ratio 25%.
Loss ratio = 90%; underwriting margin = 100 − 90 − 25 = −15%.
One catastrophe drove the loss ratio to 90%, underwriting losing 15% — offset only by investment income or reserves. This shows why insurers reinsure and spread risk: the loss ratio swings with catastrophes, not just everyday claims.
FAQ
What is a good loss ratio?
Depends on the line and expense ratio. Auto ~60%–75% is normal; health higher; property varies with catastrophe. Rule of thumb: loss ratio low enough that with the expense ratio the combined ratio stays below 100%. Above ~75%–80% with ~25% expenses, underwriting turns loss — needs investment income or a price rise.
Loss ratio vs combined ratio?
The loss ratio is only claims ÷ premium; the combined ratio = loss ratio + expense ratio, the fuller underwriting-cost gauge. Combined > 100% means underwriting at a loss (offset by investment income); < 100% means underwriting profit. Always read them together.
Why earned not annualised premium?
The loss ratio matches the period: claims paid in a period vs the premium earned in that period, so they are comparable. Annualised (unearned) premium would distort the ratio; only earned premium reflects the exposure actually carrying the claims.
Loss ratio vs combined ratio?
The loss ratio measures only claim cost (claims ÷ earned premium); the combined ratio adds the expense ratio (loss + expense), giving the full underwriting cost. Combined > 100% means the insurer loses on underwriting, relying on investment income; < 100% means underwriting profit. So: loss ratio = claim severity; combined ratio = overall underwriting result. Example: 70% loss, 25% expense → combined 95%, underwriting profit 5% before investment income; loss 90% → combined 115%, underwriting loss 15%. Always read them together to avoid 'low loss ratio looks fine but high expense erodes profit'.
What does a high loss ratio imply for the policyholder?
A high loss ratio mainly signals the insurer's underwriting result, but it matters to policyholders too. (1) For pricing: a sustained high loss ratio prompts the insurer to raise premiums or tighten terms at renewal — your premium may rise. (2) For solvency: if too high with investment losses, the insurer's capital is strained; HK insurers are prudentially supervised (HKMA/IA) with capital and reinsurance requirements, so single-year high ratios rarely mean inability to pay, but watch it. (3) For claims experience: a line/high-loss area means frequent/severe claims there — check your coverage and excess. (4) Not directly your claim payout: a high loss ratio does not mean your claim is denied; claims are per contract. So a high loss ratio tends to raise future premiums and is a pricing/solvency signal, not a personal claim-cut.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.