Difference between revisions of "Formulas - Pricing"
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| Line 15: | Line 15: | ||
|| Frequency || ''counts / X'' || counts-per-exposure | || Frequency || ''counts / X'' || counts-per-exposure | ||
|- | |- | ||
| − | || Severity || L / counts || dollars-per-count | + | || Severity || ''L / counts'' || dollars-per-count |
|- style="border-bottom: 2px solid;" | |- style="border-bottom: 2px solid;" | ||
| − | || Pure Premium || <span style="color: red;">'''L / X'''</span> || = <span style="color: red;">'''F x S'''</span> | + | || Pure Premium || <span style="color: red;">'''''L / X'''''</span> || = <span style="color: red;">'''''F x S'''''</span> |
|- | |- | ||
| − | || Loss Ratio (LR) || L / P || P is usually EP ''(Earned Premium)'' | + | || Loss Ratio (LR) || ''L / P'' || P is usually EP ''(Earned Premium)'' |
|- | |- | ||
| − | || LAE Ratio || LAE / L || LAE includes ''[[Friedland16.ALAE | ALAE]]'' and ''[[Friedland17.ULAE | ULAE]]'' | + | || LAE Ratio || ''LAE / L'' || LAE includes ''[[Friedland16.ALAE | ALAE]]'' and ''[[Friedland17.ULAE | ULAE]]'' |
|- | |- | ||
|| Loss & LAE Ratio || <span style="color: red;">'''(L + LAE) / P'''</span> || = <span style="color: red;">'''LR x (1 + LAE Ratio)'''</span> | || Loss & LAE Ratio || <span style="color: red;">'''(L + LAE) / P'''</span> || = <span style="color: red;">'''LR x (1 + LAE Ratio)'''</span> | ||
Revision as of 14:53, 6 September 2020
Refer Notation - Pricing for the list of symbols used in the pricing text. The link is also in the sidebar under Miscellaneous Battle Reports, but just as a quick reminder:
- X = exposures (number of exposures), P = Premium (dollars), L = losses (dollars)
- EP = Earned Premium (dollars), WP = Written Premium (dollars)
In the table below I also use:
- F = Frequency, S = Severity, LR = Loss Ratio,
- U/W as an abbreviation for Underwriting (so U/W is not a formula)
| Ratio | Formula | Alternate Term/Formula or Comment |
|---|---|---|
| Frequency | counts / X | counts-per-exposure |
| Severity | L / counts | dollars-per-count |
| Pure Premium | L / X | = F x S |
| Loss Ratio (LR) | L / P | P is usually EP (Earned Premium) |
| LAE Ratio | LAE / L | LAE includes ALAE and ULAE |
| Loss & LAE Ratio | (L + LAE) / P | = LR x (1 + LAE Ratio) |
| U/W Expense Ratio (UWER)1 | (Comm + Other + TLF) / WP + General / EP | uses both WP and EP |
| Operating Expense Ratio (OER) | U/W Expense Ratio + LAE / EP | monitors operational expenditures |
| Combined Operating Ratio (COR) | LR + LAE / EP + U/W Expense Ratio | primary measure of profitability |
| Retention Ratio | ( # of policies renewed ) / ( # of potential renewal policies ) | measures loyalty |
| Close Ratio | ( # of accepted quotes ) / ( # of quotes ) | measures product attractiveness |
1 (Comm + Other + TLF) = Commissions & Brokerage + Other Acquisition Expenses + General Expenses
