Formulas - Pricing
Revision as of 00:32, 6 September 2020 by Graham (talk | contribs) (Created page with "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...")
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 ) | good if high, max = 100% |
| Close Ratio | ( # of accepted quotes ) / ( # of quotes ) | good if high, max = 100% |
1 (Comm + Other + TLF) = Commissions & Brokerage + Other Acquisition Expenses + General Expenses
