Combined Loss Ratio Calculator

Formula

The formula to calculate the Combined Loss Ratio (CLR) is:

\[ \text{CLR} = \frac{\text{IL} + \text{ILAE}}{\text{EP}} \]

Where:

$ \text{CLR} $ is the combined loss ratio
$ \text{IL} $ is the incurred losses
$ \text{ILAE} $ is the incurred loss adjustment expenses
$ \text{EP} $ is the earned premiums

Definitions

Combined Loss Ratio (CLR): A key financial metric used in the insurance industry to assess the profitability of an insurance company. It is the sum of the incurred losses and incurred loss adjustment expenses divided by the earned premiums.
Incurred Losses (IL): The total amount of losses that an insurance company has incurred.
Incurred Loss Adjustment Expenses (ILAE): The costs associated with adjusting and settling claims.
Earned Premiums (EP): The total premiums earned by an insurance company for the coverage provided.

Example

Let's say the incurred losses are $500,000, the incurred loss adjustment expenses are $100,000, and the earned premiums are $1,000,000. Using the formula:

\[ \text{CLR} = \frac{500000 + 100000}{1000000} \]

We get:

\[ \text{CLR} = 0.6 \]

So, the combined loss ratio is 0.6 or 60%.

Extended information about Combined-Loss-Ratio-Calculator

Extended information about How to Calculate Loss Ratio

Definition: The loss ratio is the ratio of losses paid to premiums earned.

Formula: $ LR = \frac{Losses\ Paid}{Premiums\ Earned} $

$ LR $: Loss Ratio
$ Losses\ Paid $: Total losses paid
$ Premiums\ Earned $: Total premiums earned

Example: $ LR = \frac{500000}{1000000} $

$ Losses\ Paid $: $500,000
$ Premiums\ Earned $: $1,000,000

Extended information about Insurance Loss Ratio vs Combined Ratio

Definition: The combined ratio is the sum of the loss ratio and the expense ratio, indicating the overall profitability of an insurance company.

Formula: $ CR = LR + ER $

$ CR $: Combined Ratio
$ LR $: Loss Ratio
$ ER $: Expense Ratio

Example: $ CR = 0.5 + 0.3 $

$ LR $: 0.5
$ ER $: 0.3

Extended information about Calculate Loss Ratio Formula

Definition: The loss ratio formula calculates the proportion of premiums used to pay claims.

Formula: $ LR = \frac{Claims\ Paid}{Premiums\ Earned} $

$ LR $: Loss Ratio
$ Claims\ Paid $: Total claims paid
$ Premiums\ Earned $: Total premiums earned

Example: $ LR = \frac{300000}{900000} $

$ Claims\ Paid $: $300,000
$ Premiums\ Earned $: $900,000

Extended information about Medical Loss Ratio Calculator

Definition: The medical loss ratio (MLR) measures the percentage of premium revenues spent on clinical services and quality improvement.

Formula: $ MLR = \frac{Medical\ Claims\ Paid}{Premiums\ Earned} $

$ MLR $: Medical Loss Ratio
$ Medical\ Claims\ Paid $: Total medical claims paid
$ Premiums\ Earned $: Total premiums earned

Example: $ MLR = \frac{400000}{800000} $

$ Medical\ Claims\ Paid $: $400,000
$ Premiums\ Earned $: $800,000

Extended information about Correct Formula for Computing a Loss Ratio

Definition: The correct formula for computing a loss ratio involves dividing the total losses by the total premiums earned.

Formula: $ LR = \frac{Total\ Losses}{Total\ Premiums\ Earned} $

$ LR $: Loss Ratio
$ Total\ Losses $: Total losses incurred
$ Total\ Premiums\ Earned $: Total premiums earned

Example: $ LR = \frac{250000}{750000} $

$ Total\ Losses $: $250,000
$ Total\ Premiums\ Earned $: $750,000