Introduction To Ratemaking And Loss Reserving For Property And Casualty Insurance |top| Jun 2026

Claims that have occurred but have not yet been reported to the insurance company.

Compares the projected loss ratio to the permissible loss ratio.

Suppose a company introduces a new telematics-based auto policy. The ratemaking team prices it based on expected behavior. Two years later, the reserving actuary sees that claims are 20% higher than projected. This signal must immediately go back to ratemaking to adjust future prices. Claims that have occurred but have not yet

Calculating the average loss per unit of exposure.

Accident Year | 12 Months | 24 Months | 36 Months | 48 Months ------------------------------------------------------------- 2022 | $5,000 | $7,500 | $8,800 | $9,200 2023 | $5,500 | $8,200 | $9,500 | — 2024 | $6,000 | $9,000 | — | — 2025 | $6,700 | — | — | — The ratemaking team prices it based on expected behavior

This method blends historical loss development patterns with an initial expected loss ratio (often derived from the ratemaking department). It is highly effective for young, immature accident years where actual data is volatile or scarce, as it prevents small, early fluke claims from distorting the long-term projection. Expected Loss Ratio Method

Introduction To Ratemaking And Loss Reserving For Property And Casualty Insurance Calculating the average loss per unit of exposure

The rate should not be so high that it creates unreasonable profits.