Difference between revisions of "Formulas - Pricing"
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|| 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> |
|- | |- | ||
| − | || U/W Expense Ratio (UWER)<span style="color: red;"><sup>1</sup></span> || (Comm + Other + TLF) / WP + General / EP || uses both WP and EP | + | || U/W Expense Ratio (UWER)<span style="color: red;"><sup>1</sup></span> || ''(Comm + Other + TLF) / WP + General / EP'' || uses both WP and EP |
|- | |- | ||
| − | || Operating Expense Ratio (OER) || U/W Expense Ratio + LAE / EP || monitors operational expenditures | + | || Operating Expense Ratio (OER) || ''U/W Expense Ratio + LAE / EP'' || monitors operational expenditures |
|- style="border-bottom: 2px solid; background-color: palegreen; font-weight: 700;" | |- style="border-bottom: 2px solid; background-color: palegreen; font-weight: 700;" | ||
|| Combined Operating Ratio (COR) || LR + LAE / EP + U/W Expense Ratio || primary measure of profitability | || 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 | + | || Retention Ratio || ''( # of policies renewed ) / ( # of potential renewal policies )'' || measures loyalty |
|- | |- | ||
| − | || Close Ratio || ( # of accepted quotes ) / ( # of quotes ) || measures product attractiveness | + | || Close Ratio || ''( # of accepted quotes ) / ( # of quotes )'' || measures product attractiveness |
|} | |} | ||
<span style="color: red;"><sup>1</sup></span> (Comm + Other + TLF) = Commissions & Brokerage + Other Acquisition Expenses + General Expenses | <span style="color: red;"><sup>1</sup></span> (Comm + Other + TLF) = Commissions & Brokerage + Other Acquisition Expenses + General Expenses | ||
Revision as of 14:54, 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
