AS462_Lec02 - ACTSC 462/862 P&C Insurance Ratemaking...

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1 ACTSC 462/862 ACTSC 462/862 Lecture 2
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2 Previous Lecture Previous Lecture 1. Basic Ratemaking – Chapter 1 Fundamental Insurance Equation: Premium = Losses + LAE + UW Expenses + UW Profit 2. Basic Ratemaking – Chapter 2 Rules, Rate pages (i.e., base rates, rating tables, and fees), Rating algorithm, Underwriting guidelines 3. Basic Ratemaking – Chapter 3 Ratemaking data: Internal data Data aggregation External data
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3 Basic Ratemaking Basic Ratemaking Chapter 4: Exposures
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4 Basic Ratemaking Basic Ratemaking Chapter 4 Chapter 4 > An 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 > Premium = Base Rate × # of Exposure × Effect of rating variables
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5 Basic Ratemaking Basic Ratemaking Chapter 4 Chapter 4 > Criteria for exposure bases: 1. Proportional to Expected Loss exposure base should be the factor with the most direct relationship to the losses Thus more easily understood by the insured 2. Practical should be objective and relatively easy and inexpensive to obtain and verify 3. Historical Precedence any change in an exposure base should be very carefully considered prior to implementation: 1. a change can lead to large premium swings 2. change will require a change in the rating algorithm 3. ratemaking analysis is normally based on several years of data
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6 Basic Ratemaking Basic Ratemaking Chapter 4 Chapter 4
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7 Basic Ratemaking Basic Ratemaking Chapter 4 Chapter 4 > Aggregation of exposures:
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8 Basic Ratemaking Basic Ratemaking Chapter 4 Chapter 4 > Calendar year aggregation:
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9 Basic Ratemaking Basic Ratemaking Chapter 4 Chapter 4 > Policy year aggregation:
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10 Basic Ratemaking Basic Ratemaking Chapter 4 Chapter 4 > Written exposures (calendar year):
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11 Basic Ratemaking Basic Ratemaking Chapter 4 Chapter 4 > Written exposures (policy year):
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12 Basic Ratemaking Basic Ratemaking Chapter 4 Chapter 4 > Earned exposures (calendar year):
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13 Basic Ratemaking Basic Ratemaking Chapter 4 Chapter 4 > Earned exposures (policy year):
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AS462_Lec02 - ACTSC 462/862 P&C Insurance Ratemaking...

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