Insurance loss ratio calculator

The loss ratio formula

The National Association of Insurance Commissioners defines the loss ratio as “the percentage of incurred losses to earned premiums” (NAIC glossary of insurance terms). Both halves of that sentence matter. Incurred losses are not only the claims paid in the period: they include the change in reserves the carrier holds for claims that are open or not yet settled. Earned premium is the part of the premium for cover already provided, not the premium written; see written vs earned premium.

incurred losses = losses paid + (loss reserves at end − loss reserves at start)
loss ratio = incurred losses ÷ earned premium × 100
loss and LAE ratio = (incurred losses + loss adjustment expense) ÷ earned premium × 100
combined ratio = loss ratio (or loss and LAE ratio) + expense ratio

In the starting example, $420,000 was paid and reserves rose by $60,000, so incurred losses are $480,000. On $1,000,000 of earned premium that is a 48.0% loss ratio. If you already have an incurred figure from a loss run or a carrier report, switch to “Incurred total” and enter it directly.

When reserves go down

A reserve change can be negative. If a carrier closes a claim for less than it had reserved, or cuts a reserve, the release reduces incurred losses for the period. With $420,000 paid and reserves down $25,000, incurred losses are $395,000 and the loss ratio 39.5%. If reserves fall by more than was paid, incurred losses come out negative; the calculator shows the result and flags it, because that usually means a large release or a mistyped figure.

Loss adjustment expense

The NAIC glossary describes loss adjustment expense as payments for costs “incurred in connection with the adjustment and recording of losses”: adjusters, legal defense and similar claim costs. Some reports fold it into the loss ratio and some show it separately, so the calculator shows both. With $55,000 of LAE, the loss and LAE ratio in the example is 53.5%.

Combined ratio

The NAIC glossary calls the combined ratio “an indication of the profitability of an insurance company, calculated by adding the loss and expense ratios.” The expense ratio, underwriting expenses as a share of premium, comes from whatever financial statement you are reading, and it may be measured against written rather than earned premium, so check its basis before adding it. The calculator adds your expense ratio to the loss and LAE ratio if you entered LAE, or to the loss ratio if you didn’t. In the example, 53.5% plus 30% gives 83.5%. Below 100% means premium exceeded losses and expenses before investment income; above 100% means it didn’t.

We don’t show “good” or “typical” ratios. They vary by line, state, carrier and year, and a figure without its source would be a guess.

Your agency’s loss ratio for a contingent commission

A contingent commission usually depends on the loss ratio of your agency’s book with one carrier. The arithmetic is the same, but the definitions belong to the carrier’s agreement, and they differ from one agreement to the next:

• Which losses count. Paid plus reserves at a valuation date, sometimes with LAE, sometimes with a stop-loss that caps how much of one large claim counts.
• Which premium counts. Earned premium on eligible lines and agency codes, sometimes after excluding certain programs; audit premium can move it after the year closes.
• Which period. One calendar year, or several years averaged.

Enter the losses and premium as your agreement defines them, and optionally the loss ratio limit of the tier you are aiming for. With a 50% limit on the example book, incurred losses could be up to $500,000, so there is $20,000 of room. To turn that into a bonus estimate, use the contingent commission calculator, and read insurance agency profit sharing for how to check the carrier’s worksheet.

Illustrative only. General information, not actuarial, accounting or legal advice. Definitions quoted from the NAIC glossary of insurance terms, retrieved October 12, 2026.

Questions

What is the formula for an insurance loss ratio?

Incurred losses divided by earned premium, times 100. Incurred losses are losses paid in the period plus the change in loss reserves. $480,000 of incurred losses on $1,000,000 of earned premium is a 48% loss ratio.

Why earned premium and not written premium?

The NAIC defines the loss ratio as the percentage of incurred losses to earned premiums. Earned premium matches the cover already provided, the same period the losses come from; written premium includes cover not yet provided.

Can a reserve change be negative?

Yes. When reserves are cut or claims close for less than reserved, the change is negative and reduces incurred losses. Enter it with a minus sign.

How do you calculate a combined ratio?

Add the loss ratio and the expense ratio. If loss adjustment expense is reported separately, include it on the loss side. A 53.5% loss and LAE ratio plus a 30% expense ratio is an 83.5% combined ratio.

What loss ratio do I need for a contingent commission?

Whatever your carrier’s agreement says. Each agreement sets its own limits and defines which losses and premium count. Enter its figures here, then use the contingent commission calculator for the bonus.

What is a good loss ratio?

It depends on the line, the state, the carrier and the year. We don’t publish a benchmark because we have no sourced figure that would fit every case.

Can I put this calculator on my website?

Yes. The page has an embed code for an iframe that keeps a visible Powered by Lapidar link. It runs in the visitor’s browser and sends nothing anywhere.

Does this calculator store or send my numbers?

No. The calculation runs in your browser. Nothing is uploaded, saved or tracked.