Risk Load Calculator

A risk load is the margin an insurer adds on top of Expected Loss to guard against the loss coming in worse than the average case -- pricing to the mean alone leaves no cushion for the volatility real loss experience actually has. This calculator estimates that margin using a standard-deviation multiplier approach: it converts Confidence Level (%) into a z-score from the normal distribution (90% maps to roughly 1.28, 95% to roughly 1.645, 97.5% to roughly 1.96, and 99% to roughly 2.326 -- the same z-scores used in one-sided normal confidence intervals generally), then multiplies that z-score by Standard Deviation to get Risk Load. Total Risk Charge and Risk-Adjusted Premium both add that Risk Load on top of Expected Loss, so a business or line with more volatile losses (a higher Standard Deviation) needs a proportionally larger risk load to reach the same confidence level, holding the mean loss constant.

Capital Required and Return on Capital layer a simplified cost-of-capital view on top: this calculator's own model scales Risk Load by one plus the spread between Cost of Capital (%) and Risk-Free Rate (%), then expresses the implied return on that capital as a percentage. Note that Return on Capital in this model depends only on Cost of Capital (%) and Risk-Free Rate (%) -- the Expected Loss and Standard Deviation inputs cancel out of that particular ratio algebraically, even though they still drive the dollar size of Risk Load and Capital Required themselves. This is a simplified illustration of risk-loading mechanics, not a specific insurer's or standard's actual capital-allocation methodology, which in practice also weighs correlation with other lines, regulatory capital requirements, and reinsurance structure.