Insurance Loss Ratio Calculator
The insurance loss ratio is one of the most important profitability metrics for property and casualty (P&C) and health insurers. It measures how efficiently an insurer pays claims relative to the premiums it collects. A loss ratio is computed by dividing incurred losses (the total cost of claims including reserves) by earned premiums (the portion of premiums attributable to the coverage period). This calculator computes the loss ratio and pure loss ratio (excluding loss adjustment expenses). It is used by insurers, analysts, and regulators to assess underwriting performance. Enter incurred losses, loss adjustment expenses (LAE), and earned premiums.
Loss ratio formula
Loss ratio = (Incurred losses + LAE) / Earned premiums x 100
Pure loss ratio = Incurred losses / Earned premiums x 100
Incurred losses include paid claims plus reserves for unpaid claims (IBNR). LAE (loss adjustment expenses) covers claim investigation and settlement costs. Earned premiums are the revenue attributable to the expired portion of policies.
Interpreting loss ratios
- A loss ratio below 65 percent in personal lines insurance typically indicates a profitable book of business before expenses.
- The ACA mandates health insurers maintain a medical loss ratio (MLR) of at least 80 percent (individual/small group) or 85 percent (large group).
- Combined with the expense ratio, the combined ratio gives a complete picture of underwriting performance.
- Catastrophic events (hurricanes, wildfires) can temporarily spike loss ratios well above 100 percent for property insurers.
- State insurance regulators use loss ratios to evaluate rate filings and detect rate inadequacy.
Loss ratio: frequently asked questions
What is the insurance loss ratio?
The loss ratio is incurred losses (claims paid plus reserves for future claim payments) divided by earned premiums, expressed as a percentage. A loss ratio of 65% means the insurer paid $0.65 in claims for every $1.00 of premium earned. It is the primary measure of claims-paying efficiency for a property and casualty insurer.
What is a good loss ratio?
Target loss ratios vary by line of business. For personal auto insurance, a loss ratio around 65 to 75 percent is typical. Combined with an expense ratio of 25 to 30 percent, a total combined ratio near or below 100 percent indicates underwriting profitability. Health insurance uses medical loss ratio (MLR) with ACA minimums of 80 to 85 percent.
What is the difference between loss ratio and combined ratio?
The combined ratio adds the expense ratio (underwriting and administrative costs as a percent of premiums) to the loss ratio. A combined ratio below 100 percent means the insurer earns an underwriting profit; above 100 percent means underwriting losses, which must be offset by investment income.
What are incurred losses?
Incurred losses are the total cost of claims during a period, including amounts paid to claimants, reserves established for claims not yet fully settled (IBNR), and loss adjustment expenses. They may differ substantially from cash payments made in the same period.
What are earned premiums?
Earned premiums are the portion of written premiums that apply to the coverage period already elapsed. If a policy is written mid-year, only half of the annual premium is earned in that year; the other half is unearned and held as a liability.
Official sources
- NAIC (National Association of Insurance Commissioners): NAIC Consumer Resources.
- CMS (Centers for Medicare and Medicaid Services): Medical Loss Ratio.
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.