# How to Calculate Loss Ratio

How to Calculate Loss Ratio
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A loss ratio is an insurance term that refers to the amount of money paid out in claims divided by the amount of money taken in for premiums. In order to make money, insurance companies must keep their loss ratios relatively low. Companies must keep track of this important calculation in order to evaluate how effectively the business is being run.

## Step 1

Add the money paid out in claims for a certain period of time. For instance, a company may have paid out a total of \$65,000 in claims during a previous year.

## Step 2

Add the money taken in for premiums. For example, a company may have taken in a total of \$100,000 in premiums during a particular year.

## Step 3

Divide the total from Step 1 by the total from Step 2 to find the loss ratio. In this example, you would divide 65,000 by 100,000 to get a figure of 0.65.

## Step 4

Multiply your answer from Step 3 by 100 to state the answer in terms of a fraction. Since 0.65 times 100 equals 65, the loss ratio for this company was 65 percent.

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