Loss Ratio Calculator

How it is calculated

The tool computes loss ratio = incurred losses ÷ earned premiums × 100, the NAIC definition. Incurred losses are the claims paid in the period plus the change in reserves for unpaid claims, so paid claims alone can understate the ratio; if you include loss adjustment expense, add it to the incurred-losses figure yourself. Both inputs are money amounts for the same period, such as one accounting year, and in the same currency. The answer is a percentage rounded to two decimals, and it also echoes your two amounts back so you can check what was used. Incurred losses must be zero or more, and earned premiums must be above zero, because dividing by zero or by a negative premium has no meaning; in those cases no result appears. A result over 100% is allowed and means losses exceeded premiums. The tool uses exactly the figure you enter and does not estimate reserves or expenses, so decide what belongs in it before you type it.

Common mistakes

• Using written premium instead of earned premium. Only the part of the premium that covers time already elapsed counts as earned.
• Mixing periods, such as a full year of claims against six months of premium, which inflates the ratio.
• Entering a rate or percentage in the losses field instead of an amount in money.
• Reading a ratio below 100% as profit. Expenses sit on top of claims, so a 95% loss ratio can still be unprofitable.
• Entering paid claims when the comparison uses incurred losses, or adding loss adjustment expense without noticing, so the result no longer matches the loss ratio you are comparing it with.