How do insurance companies calculate expense ratios?

There are two ways to calculate expense ratios. Insurance companies typically use statutory accounting as opposed to generally accepted accounting principles (GAAP) accounting to calculate their expense ratios, as statutory accounting yields more conservative ratios.

How to calculate insurance expense ratio using GAAP?

It is used while calculating it through GAAP. In layman’s terms, the formula to get the Expense Ratio is dividing the expenses of the insurance company by Net Premium Earned. In other words, the cost of operating an insurance company shown in comparison to the percentage of sales is known as the Expense Ratio.

What is underwriting loss ratio & expense ratio?

Sum the underwriting loss ratio and the expense ratio. These are the losses related to claims. This is the amount of money the insurance company spent on business expenses. This is the amount of money paid by clients to insurance companies to cover risk. This ratio results when dividing the incurred losses (see above) by the net premium earned.