Expected Loss Ratio Calculator

Formula

The formula to calculate the Expected Loss Ratio (ELR) is:

\[ ELR = \frac{PC}{EP} \times 100 \]

Where:

$ ELR $ is the Expected Loss Ratio (%)
$ PC $ is the projected claims (\$)
$ EP $ is the earned premiums (\$)

Definition

Expected Loss Ratio: A measure used in insurance to compare the projected claims to the earned premiums. It helps in assessing the profitability and risk associated with insurance policies.

Example

Let's say the projected claims (PC) are \$50,000 and the earned premiums (EP) are \$100,000. Using the formula:

\[ ELR = \frac{50,000}{100,000} \times 100 = 50\% \]

So, the expected loss ratio (ELR) is 50%.

Extended information about "Expected-Loss-Ratio-Calculator"

How to Calculate Expected Loss

Definition: Expected loss is the anticipated amount of loss from a financial transaction or investment.

Formula: $ \text{Expected Loss} = \text{Probability of Default} \times \text{Exposure at Default} \times \text{Loss Given Default} $

$ \text{Expected Loss} $: Total expected loss
$ \text{Probability of Default} $: Likelihood of default
$ \text{Exposure at Default} $: Amount exposed to default
$ \text{Loss Given Default} $: Percentage of loss if default occurs

Example: $ \text{Expected Loss} = 0.05 \times 1000000 \times 0.4 $

Probability of Default: 5%
Exposure at Default: $1,000,000
Loss Given Default: 40%

How to Calculate Loss Ratio

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

Formula: $ \text{Loss Ratio} = \frac{\text{Incurred Losses}}{\text{Earned Premiums}} $

$ \text{Loss Ratio} $: Ratio of losses to premiums
$ \text{Incurred Losses} $: Total losses incurred
$ \text{Earned Premiums} $: Total premiums earned

Example: $ \text{Loss Ratio} = \frac{500000}{2000000} $

Incurred Losses: $500,000
Earned Premiums: $2,000,000

Calculating a Loss Ratio

Definition: Calculating a loss ratio involves determining the ratio of incurred losses to earned premiums.

Formula: $ \text{Loss Ratio} = \frac{\text{Incurred Losses}}{\text{Earned Premiums}} $

$ \text{Loss Ratio} $: Ratio of losses to premiums
$ \text{Incurred Losses} $: Total losses incurred
$ \text{Earned Premiums} $: Total premiums earned

Example: $ \text{Loss Ratio} = \frac{300000}{1500000} $

Incurred Losses: $300,000
Earned Premiums: $1,500,000

Calculate the Total Expected Loss

Definition: The total expected loss is the anticipated amount of loss from a financial transaction or investment.

Formula: $ \text{Expected Loss} = \text{Probability of Default} \times \text{Exposure at Default} \times \text{Loss Given Default} $

$ \text{Expected Loss} $: Total expected loss
$ \text{Probability of Default} $: Likelihood of default
$ \text{Exposure at Default} $: Amount exposed to default
$ \text{Loss Given Default} $: Percentage of loss if default occurs

Example: $ \text{Expected Loss} = 0.03 \times 500000 \times 0.5 $

Probability of Default: 3%
Exposure at Default: $500,000
Loss Given Default: 50%

Formula for Expected Loss

Definition: The formula for expected loss calculates the anticipated amount of loss from a financial transaction or investment.

Formula: $ \text{Expected Loss} = \text{Probability of Default} \times \text{Exposure at Default} \times \text{Loss Given Default} $

$ \text{Expected Loss} $: Total expected loss
$ \text{Probability of Default} $: Likelihood of default
$ \text{Exposure at Default} $: Amount exposed to default
$ \text{Loss Given Default} $: Percentage of loss if default occurs

Example: $ \text{Expected Loss} = 0.04 \times 800000 \times 0.6 $

Probability of Default: 4%
Exposure at Default: $800,000
Loss Given Default: 60%

Calculate Loss Ratio Formula

Definition: The loss ratio formula calculates the ratio of incurred losses to earned premiums.

Formula: $ \text{Loss Ratio} = \frac{\text{Incurred Losses}}{\text{Earned Premiums}} $

$ \text{Loss Ratio} $: Ratio of losses to premiums
$ \text{Incurred Losses} $: Total losses incurred
$ \text{Earned Premiums} $: Total premiums earned

Example: $ \text{Loss Ratio} = \frac{400000}{1000000} $

Incurred Losses: $400,000
Earned Premiums: $1,000,000

How to Compute Loss Ratio

Definition: Computing the loss ratio involves determining the ratio of incurred losses to earned premiums.

Formula: $ \text{Loss Ratio} = \frac{\text{Incurred Losses}}{\text{Earned Premiums}} $

$ \text{Loss Ratio} $: Ratio of losses to premiums
$ \text{Incurred Losses} $: Total losses incurred
$ \text{Earned Premiums} $: Total premiums earned

Example: $ \text{Loss Ratio} = \frac{600000}{2500000} $

Incurred Losses: $600,000
Earned Premiums: $2,500,000