Formulas

Question 1

What is the loss ratio formula?

Answer 1

calculated by dividing the Total Losses by the Earned
Premium and multiply by 100 (expressed as a percentage)

Question 2

What is the ‘Total Losses’ formula?

Answer 2

the losses paid in the current year plus the reserve for
outstanding losses at the end of the current year.

Question 3

What is the ‘Earned Premium’ formula?

Answer 3

the premium income of the current year plus the
premium reserve from the preceding year less the premium reserve for the
current year

Question 4

Index calculations

Answer 4

(1.) Payment x base date/payment date = adjusted payment value. (2.) deductible x payment/adjusted payment value = adjusted deductible.
(3.) Actual payment - adjusted deductible = Recoveries

Question 5

What is the combined ratio in insurance/reinsurance, and how is it calculated?

Answer 5

It is a measure of underwriting performance, calculated by adding:
- Loss ratio = incurred losses (incl. loss adjustment expenses) ÷ earned premiums
- Expense ratio = incurred expenses ÷ written premiums