1. What Is Loss Ratio Under IFRS 17?

The Loss Ratio under IFRS 17 represents the ratio of the present value of future cash flows (discounted expected claims) to premiums earned. This metric is crucial for insurance companies to assess profitability and risk exposure under the new IFRS 17 accounting standard.

2. How Does The Calculator Work?

The calculator uses the IFRS 17 Loss Ratio formula:

Where:

• \( \text{Present Value of Future Cash Flows} \) — Discounted expected claims and benefits (USD)
• \( \text{Premiums} \) — Total premiums earned or written (USD)
• \( LR \) — Loss Ratio expressed as percentage (%)

Explanation: Under IFRS 17, loss ratio calculation incorporates time value of money by discounting future cash flows, providing a more accurate representation of insurance contract profitability.

3. Importance Of Loss Ratio Calculation

Details: The loss ratio is a key performance indicator for insurers, helping to measure underwriting profitability, set appropriate premium rates, and ensure regulatory compliance under IFRS 17 standards.

4. Using The Calculator

Tips: Enter the present value of future cash flows and premiums in USD. Both values must be positive, with premiums greater than zero for valid calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between IFRS 17 and previous accounting standards?
A: IFRS 17 introduces a comprehensive model for insurance contracts that includes discounting future cash flows and recognizing profit over the coverage period, unlike previous standards.

Q2: What is considered a good loss ratio?
A: Typically, loss ratios below 60% are considered profitable, 60-75% indicate break-even, and above 75% suggest underwriting losses, though this varies by insurance type.

Q3: How does discounting affect the loss ratio?
A: Discounting reduces the present value of future claims, which typically lowers the loss ratio compared to undiscounted calculations, reflecting the time value of money.

Q4: What cash flows are included in the calculation?
A: Includes all expected future cash flows related to claims, benefits, and claim settlement costs, discounted at appropriate rates reflecting the timing and uncertainty.

Q5: How often should loss ratios be calculated?
A: Insurers typically calculate loss ratios quarterly and annually for financial reporting, but may monitor them more frequently for internal management purposes.