AINS 101: Insurance Ratio Calculations 1. Loss Ratio Definition : The Loss Ratio is a key measure used by insurance companies to assess their underwriting performance. It is calculated by dividing the insurer's incurred losses by the earned premiums over a specific period. Formula: Loss Ratio = (Incurred Losses / Earned Premiums) × 100 Example Calculation: Let’s say an insurance company earned $1,000,000 in premiums and incurred $650,000 in losses during a year. Loss Ratio = ($650,000 / $1,000,000) × 100 = 65% Interpretation: A Loss Ratio of 65% means that for every dollar earned in premiums, the company pays out $0.65 in claims. A lower loss ratio is generally better as it indicates that the company is retaining more of its premiums after paying claims. 2. Expense Ratio Definition : The Expense Ratio measures the insurer’s operational efficiency by comparing its expenses to its earned premiums. This ratio reflects the cost of acquiring and servicing pol...