What is the formula for calculating Expected Losses?

The formula for calculating Expected Losses is correctly represented as EL = (Payroll/100) x Expected Loss Ratio. This formulation is used to estimate the loss amounts that an organization might face based on its payroll expenses and the associated loss ratio expected in a given time period.

The Expected Loss Ratio is a critical component as it reflects the proportion of payroll that is estimated to translate into losses, often derived from historical loss experience. By dividing the payroll by 100, the formula standardizes the payroll amount, ensuring that the expected losses can be calculated as a percentage or proportion of the total payroll, which offers a clear and manageable way to assess risk.

In contrast, other choices present alternative formulations, but they either misrepresent the relationship between the payroll and the expected loss ratio or do not factor in the necessary adjustments for consistency. For instance, multiplying payroll directly by the expected loss ratio without any modification may not correctly align with the calculated percentage representation needed to derive expected losses accurately.