formulas- RISK MGMT
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15 Terms
What is the loss ratio formula?
= (Incurred Losses + Loss Adjustment Expenses) ÷ Premiums Earned
What is the expense ratio formula?
= Underwriting Expenses ÷ Premiums Written
What is the combined ratio formula?
= Loss Ratio + Expense Ratio
What is the operating ratio formula?
= Combined Ratio − Investment Income Ratio
What is the pure premium formula?
= Expected Losses + LAE ÷ Exposure Units
What is the gross rate formula?
= Pure Premium ÷ (1 − Expense Ratio)
What is the gross premium formula?
= Gross Rate × Number of Exposure Units
What is the experience rating formula?
= Actual Loss Ratio ÷ Expected Loss Ratio
What is the rate increase/decrease formula?
= (Actual Loss Ratio ÷ Expected Loss Ratio) − 1
How do you calculate pure premium with $30M losses and 500,000 autos?
$30,000,000 ÷ 500,000 = $60 per auto
How do you calculate gross rate with a $60 pure premium and 40% expense ratio?
$60 ÷ (1 − 0.40) = $100
How do you calculate a rate change with an 80% actual loss ratio and 70% expected loss ratio?
(0.80 ÷ 0.70) − 1 = 14.29% increase
What is the formula for policyholders' surplus?
= Assets − Liabilities
Amount added to pure premium for expenses, profit, and contingencies
What is the loading?
What is the gross rate?
Pure premium + loading element