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Insurer Performance & Profit

Ultimate loss Components

  • = Rept + IBNYR + IBNER
  • Reported Losses
    • Paid Losses
    • Case O/S
  • Incurred But Not YET Reported (IBNYR)
    • = Pure IBNR (late reporting, don't know about it yet)
  • Incurred But Not ENOUGH Reported (IBNER)
    • "development on known claims"
  • Notes on aggregation
    • RY aggregation doesn't include claims reported late (IBNYR). Thus, its development is only on known claims (IBNER)1
    • AY aggregation does include claims reported even after the policy has expired, thus it creates a provision for claims that haven't yet been reported (Pure IBNR)

Ratios

  • Frequency
  • Severity
  • Pure Premium (Halt! It is not premium, it's just average loss)
  • Average Premium (Yes! This is about premiums collected from policyholders)
  • Loss Ratio
  • UW Expense ratio: \% of $ to pay UW expenses
  • OER (Operating Expense Ratio): \% to $ to pay UW expenses and LAE
    • UW ratio + LAE ratio
  • Combined Ratio: \% of $ to pay all underwriting costs.
    • Loss Ratio + OER
    • UW profit \% = 1 - Combined Ratio

  1. Think about it, If each cell in the triangle only contains those claims which are reported / known and doesn't have a provision on unknown claims, we can actually use that information to estimate the IBNER, which would be nice. But we would miss out on all the information about claims that have not yet been reported (late reporting). ↩