[[Actuarial Notes Wiki|Wiki]] / [[Exam 5 (CAS)]] / **Policy Year** ## Definition ==Policy Year== Policy year is a data organization method where all premiums, losses, and expenses are grouped by the year in which the policy became effective, tracked throughout the entire policy period. ## Key Features ### Complete Policy View - Includes all transactions for policies effective in a given year - Follows policies from inception through expiration and claim settlement - Provides most complete profitability picture ### Development Period Policy year data requires the longest development period: - Policy term (typically 12 months) - Plus claim settlement period (varies by line) - Long-tail lines may take 10+ years to fully develop ## Uses **Profitability Analysis** - True underwriting profitability - Management performance evaluation - Line of business assessment **Experience Rating** - Individual risk evaluation - Retrospective rating calculations - Large deductible programs ## Advantages 1. Matches premium with corresponding losses 2. Best measure of underwriting profitability 3. Useful for homogeneous exposure groups 4. Clear beginning and end of exposure period ## Disadvantages 1. Longest development period 2. Complex data requirements 3. Delayed availability for rate indications 4. Requires sophisticated tracking systems ## Example ``` Policy effective 7/1/2024 (12-month term): Policy Year 2024 includes: - Full premium for 7/1/2024 - 6/30/2025 policy - All losses occurring 7/1/2024 - 6/30/2025 - Development continues until all claims settled Development timeline: - 7/1/2024: Policy effective - 6/30/2025: Policy expires - 2026-2030+: Claims settle - Full maturity: When all claims closed ``` ## Conversion Between Methods Policy year can be converted to accident year: - 12-month policies: PY → 2 AY (partial overlap) - Parallelogram method used for conversion ## Related Concepts - [[Ratemaking Data Organization]] - [[Accident Year]] - [[Calendar Year]] - [[Experience Rating]] ## References - Werner & Modlin, Chapter 3