#ActuarialScience #Insurance #PandC #Ratemaking #LossReserving #RiskManagement #DataAnalytics
+-------------------------------------------------------------+ | TOTAL PREMIUM | +------------------------------+--------------------+---------+ | Pure Premium | Expense Loading | Profit/ | | (Claims + LAE Estimates) | (Overhead/Commis.) | Contin. | +------------------------------+--------------------+---------+ Primary Ratemaking Methodologies
Introduction to Ratemaking and Loss Reserving for Property and Casualty Insurance Multiply the latest known cumulative loss for each
Arrange cumulative paid losses by accident year (year the event occurred) and development year (years after the event). Calculate “age-to-age factors” (e.g., losses from 12-24 months after the accident are typically 1.20 times losses from 0-12 months). Multiply the latest known cumulative loss for each accident year by these factors to project ultimate losses.
At its core, the premium is driven by the method or the Loss Ratio method. The simplest expression of the Pure Premium approach is: The premium must also cover commissions
Historical Data (Losses) → Adjust for Inflation & Trends → Project Future Losses → Add Expenses & Profit → Final Rate
The P&C insurance industry is heavily regulated to protect consumers and ensure solvency. Multiply the latest known cumulative loss for each
The premium must also cover commissions, underwriting salaries, taxes, and general overhead.
: Premiums must be high enough to cover all expected losses and expenses while providing a reasonable profit.