Actsc462_lec03

Actsc462_lec03 - ACTSC 462/862 P&C Insurance Ratemaking Lecture 3 1 Previous Lecture 1 Basic Ratemaking Chapter 4 exposure is the basic unit that

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1 ACTSC 462/862 ACTSC 462/862 Lecture 3
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2 Previous Lecture Previous Lecture 1. Basic Ratemaking – Chapter 4 exposure is the basic unit that measures a policy’s exposure to loss Æ therefore the exposure serves as the basis for the calculation of premium written, earned, unearned and in-force exposures 2. Basic Ratemaking – Chapter 5 Premium = Losses + LAE + UW Expenses + UW Profit Adjustments to historical premium: current rate level, premium development, premium trend
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3 Basic Ratemaking Basic Ratemaking Chapter 6: Losses and LAE
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4 Basic Ratemaking Basic Ratemaking Chapter 6 Chapter 6 >P rem ium= Losses + LAE + UW Expenses + UW Profit > Chapter covers: • The different types of insurance losses • How loss data is aggregated for ratemaking analysis • Common metrics involving losses • Adjustments made to historical loss data to make it relevant for estimating future losses in the context of
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5 Basic Ratemaking Basic Ratemaking Chapter 6 Chapter 6 > Loss definitions: • Paid losses = losses that have been paid to claimants • Case reserve = expected amount yet to be paid on a claim • Reported losses = sum of paid losses and case reserves • Ultimate losses = further development on reported losses for any anticipated shortfall in the case reserves (IBNER) and for claims that have not yet been reported (IBNR)
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6 Basic Ratemaking Basic Ratemaking Chapter 6 Chapter 6 > Loss aggregation methods: Calendar year aggregation: considers all loss transactions that occur during the 12-month calendar year without regard to the date of policy issuance, the accident date, or the report date of the claim Accident year aggregation: considers all loss transactions for claims that have an occurrence date during the year being evaluated, regardless of when the policy was issued or the claim was reported Policy year aggregation: (a.k.a. underwriting year) considers all loss transactions on policies that were written during the year, regardless of when the claim occurred or when it was reported, reserved, or paid Report year aggregation: similar to accident year except the losses are aggregated according to when the claim is reported, as opposed to when the claim occurs
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7 Basic Ratemaking Basic Ratemaking Chapter 6 Chapter 6 > Loss aggregation methods – example:
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8 Basic Ratemaking Basic Ratemaking Chapter 6 Chapter 6 > Loss aggregation methods – example:
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9 Basic Ratemaking Basic Ratemaking Chapter 6 Chapter 6 > Common Ratios Involving Loss Statistics: 1. Frequency: expressed per unit of exposure e.g. 7,500 claims in a calendar/accident year with 150,000 exposures = 0.05 freq 2. Severity: Average loss per claim e.g. for $18,750,000 of reported losses, severity is $2,500 (= $18,750,000 ÷ 7,500). 3. Pure premium (also known as loss cost or burning
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This note was uploaded on 10/30/2011 for the course ACTSC 462 taught by Professor Wslennox during the Winter '11 term at Waterloo.

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Actsc462_lec03 - ACTSC 462/862 P&C Insurance Ratemaking Lecture 3 1 Previous Lecture 1 Basic Ratemaking Chapter 4 exposure is the basic unit that

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