Introduction To Ratemaking And Loss Reserving For Property And Casualty Insurance 'link' Access

The Actuarial Foundation: Introduction to Ratemaking and Loss Reserving

Property and Casualty (P&C) insurance—covering risks from car accidents and house fires to medical malpractice and product liability—operates on a simple promise: the policyholder pays a premium today in exchange for the insurer’s promise to pay for certain losses tomorrow. But how does an insurer determine how much premium to charge? And how does it know how much money to set aside for claims that have happened but not yet been paid? Expected loss = Expected frequency × Expected severity

• Expected loss = Expected frequency × Expected severity.
• Frequency models: Poisson, negative binomial (for overdispersion).
• Severity models: Lognormal, Gamma, Pareto, Weibull; often modeled separately and combined using compound distributions or simulation.

Rate Relativity and Classification

The formal process of setting a new rate is: Rate Relativity and Classification The formal process of

• The reserving actuary looks at how losses "aged" from 12→24→36 months in the past to predict future growth for recent accident years.