To Ratemaking And Loss Reserving For Property And Casualty Insurance — Introduction

High enough to cover all losses and expenses so the insurer remains solvent.

Ratemaking uses past losses projected forward, assuming stable claim development patterns. Loss reserving uses past paid/incurred losses , assuming stable claim frequency and severity. When these assumptions fail simultaneously (e.g., after a tort reform or a pandemic), both pillars break. High enough to cover all losses and expenses

Let ( L_i,j ) be the incremental paid loss for accident year ( i ) and development year ( j ). Traditional reserving models ( L_i,j = \alpha_i \beta_j + \epsilon_i,j ). Ratemaking models the premium ( P_i ) as a function of exposure ( E_i ) and expected ultimate loss ( \hatU i ), where ( \hatU i = \sum j=0^J \hatL i,j ). When these assumptions fail simultaneously (e

Ratemaking is the process of determining the appropriate price (premium) for an insurance policy to cover expected future costs. Ratemaking models the premium ( P_i ) as

: Rates should not be so high that policyholders pay more than the actual value of protection. Not Unfairly Discriminatory