### A. Ratemaking
**Ratemaking** is the process of determining the price (premium) an insurance company should charge for a specific insurance policy.
| Term | Definition |
| -------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- |
| [[Exposure Base]] | The unit of measure used to calculate premiums, reflecting the risk exposure (e.g., vehicle-years for auto insurance). |
| Ratemaking Data | Data used to develop insurance rates, including premiums, losses, and exposures. |
| Calendar Year | A reporting period that aggregates all transactions that occur within that year. |
| Policy Year | Data grouped by policies initiated during a specific year. |
| Accident Year | Grouping claims based on the year the accidents occurred, regardless of policy year. |
| Report Year | Grouping claims by the year they were reported. |
| Close Year | Grouping claims by the year in which a claim is closed. |
| In-Force | Policies that are active and providing coverage at a specific point in time. |
| Net of Reinsurance | Insurance data after accounting for reinsurance transactions. |
| Homogenous Group | A group of risks with similar characteristics used for rating purposes. |
| Loss | The monetary cost of claims incurred by an insurer. |
| Loss Adjustment Expense (LAE) | Expenses associated with investigating and settling claims. |
| Claims-Made Coverage | Coverage that is triggered when a claim is made during the policy period. |
| Occurrence Coverage | Coverage that is triggered by events occurring during the policy period, regardless of when the claim is made. |
| On-Level | Adjusting historical premiums to current rate levels for accurate comparisons. |
| Premium Audit | Review of policyholder records to determine the actual exposure base for premium calculation. |
| Exposure Trend | The projected change in exposure levels over time. |
| Premium Trend | The projected change in premium levels over time. |
| Loss Trend | The projected change in claim costs over time. |
| Underwriting Provision | A component of the rate for expenses, profit, and contingencies. |
| Fixed Expenses | Expenses that do not vary with the level of exposure. |
| Variable Expenses | Expenses that vary directly with the level of exposure. |
| Reinsurance Costs | Costs paid for transferring risk to another insurer (reinsurer). |
| Profit Loading | An allowance for profit included in insurance rates. |
| Large Loss | A high-severity, infrequent claim. |
| [[Catastrophe Modelling\|Catastrophe]] | A large-scale event causing significant losses, such as natural disasters. |
| Overall Rate Level Indication | The calculation of needed rate adjustments for all policies. |
| Pure Premium Method | A ratemaking approach using actual losses per exposure unit. |
| Loss Ratio Method | A method comparing losses to earned premiums to adjust rates. |
| Credibility | A measure of confidence in the predictive value of data. |
| Complement of Credibility | Supplementary data used when primary data lacks credibility. |
| Operational Constraints | Limitations in administrative or technical capabilities impacting ratemaking. |
| Marketing Constraints | Market factors influencing rate adjustments, like competition. |
| Regulatory Constraints | Legal and regulatory requirements affecting ratemaking. |
| Lifetime Value | The estimated total value of a policyholder over time. |
| Predictive Model | Statistical models predicting future outcomes for ratemaking or underwriting. |
| Classification Ratemaking | Creating rates for distinct groups based on risk characteristics. |
| Territory Rating | Adjusting rates based on geographic location. |
| Deductible | The amount a policyholder pays out-of-pocket before insurance coverage applies. |
| Increased Limits | Higher coverage limits and corresponding rate adjustments. |
| Coinsurance | A cost-sharing arrangement between the insurer and insured. |
| Commercial Lines Rating | Ratemaking specific to business insurance policies. |
| [[Principles of Ratemaking]] | Principles ensuring rates are adequate, not excessive, equitable, and responsive to change. |
| Minimum Premium | The lowest premium amount required for a policy. |
| Non-Pricing Solution | Alternative measures to address underwriting issues without changing rates. |
### B. Estimating Claim Liabilities
**Estimating claim liabilities**, also known as "reserving" is the practice of setting aside funds (reserves) to pay for future insurance claims.
| Term | Definition |
| ------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Unpaid Claims | The total amount of claim liabilities that an insurer has incurred but has not yet paid. This includes both case reserves and incurred but not reported (IBNR) claims. |
| Reserving Data | The historical claims data used to estimate unpaid claim liabilities. It includes information such as loss payments, case reserves, and exposures. |
| Calendar Year | Aggregate claims and premiums based on transaction dates within a year |
| Accident Year | Aggregate claims by the date of occurrence, regardless of report timing. |
| Policy Year | Aggregate claims by the policy’s start year, aligning claims and premiums. |
| Underwriting Year | Aggregate claims by the year the reinsurance policy became effective. |
| Report Year | Aggregate claims by when they are reported to the insurer. |
| Long Tail Insurance | Covers claims with extended reporting and settlement periods. |
| Short Tail Insurance | Covers claims that are quickly reported and settled. |
| Development Triangle | Organizes claims data by accident year and development maturity. |
| Tail Factor | Estimates future claim development beyond observed data points. |
| Development Triangle Diagnostics | Technique to examine claim development trends for reserving accuracy. |
| Development Technique (Chain Ladder) | Projects future claims based on historical development factors. |
| Case Outstanding Technique | Uses reported claims and reserves to estimate unpaid claims |
| Expected Losses Technique | Estimates unpaid claims using [[Expected Loss Ratio\|Expected Loss Ratios]]. |
| Bornhuetter-Ferguson Technique | Combines expected losses with reported claims development. |
| Cape Cod Technique | Refines Bornhuetter-Ferguson by adjusting for policy exposure. |
| Frequency-Severity Technique | Estimates losses by multiplying claim frequency and severity. |
| Berquist-Sherman Technique | Adjusts claim data for operational changes affecting reserve analysis. |
| Benktander Technique | A refinement of Bornhuetter-Ferguson, giving more weight to actual data. |
| Operational Changes | Modifications in claim handling, underwriting, or reporting procedures. |
| Claims Coding | Categorizing claims for statistical analysis and reserving accuracy. |
| Claims Processing | The entire workflow of handling insurance claims from report to settlement. |
| Recoveries | Amounts recovered from third parties, reducing claim costs. |
| Deductible | The amount policyholders pay before insurance coverage applies. |
| Salvage | Recovery from damaged property reducing insurer’s loss. |
| Subrogation | Insurer’s right to recover payments from responsible third parties. |
| Case Outstanding Adequacy | Evaluating if claim reserves reflect true liability. |
| Settlement Rate | The speed at which claims are resolved over time. |
| Mix of Business | The distribution of different insurance policies in a portfolio. |
| Inflationary Environment | Economic conditions influencing claim costs over time. |
| Legal Environment | Laws and regulations affecting insurance claims and settlements. |
| ALAE Estimation Techniques | Methods to estimate allocated loss adjustment expenses. |
| ULAE Estimation Techniques | Methods to estimate unallocated loss adjustment expenses. |
| Reserve Analysis | Actuarial evaluation of claim reserves for adequacy. |
| Actual versus Expected | Comparing real claim development against projections. |
| Roll Forward Analysis | Updating reserve estimates using current claim data. |
| Gross Losses | Total claims before any recoveries or reinsurance adjustments. |
| Ceded Losses | Portion of claims transferred to reinsurers. |
| Net Losses | Gross losses minus ceded losses and recoveries. |
| External Information | Data from outside sources affecting claim estimation. |
## Sources
| Source | Coverage |
| ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- |
| 1. [(📄PDF) Basic Ratemaking](https://www.casact.org/sites/default/files/2021-03/5_Werner_Modlin.pdf) (Werner, Modlin - 2016) | Chapters 1, 3-16 |
| 2. [(📄PDF) Estimating Unpaid Claims Using Basic Techniques](https://www.casact.org/sites/default/files/2021-03/5_Friedland.pdf) (Friedland - 2010) | All, excluding appendices |
| 3. [(📄PDF) Actuarial Standards of Practice No. 12 Risk Classification](https://www.casact.org/sites/default/files/2021-03/5_ASOP_12.pdf) (ASB - 2011) | All |
| 4. [(📄PDF) Actuarial Standards of Practice No. 13 Trending Procedures in Property-Casualty Insurance](https://www.casact.org/sites/default/files/2021-03/5_ASOP_13.pdf) (ASB - 2011) | All |
| 5. [(📄PDF) Actuarial Standards of Practice No. 43 Property-Casualty Unpaid Claims Estimates](https://www.casact.org/sites/default/files/2021-03/5_ASOP_43.pdf) (ASB - 2011) | All |
| 6. [(📄PDF) Statement of Principles Regarding Property and Casualty Insurance Ratemaking](https://www.casact.org/sites/default/files/2021-05/Statement-Of-Principles-Ratemaking.pdf) (CAS - 1988) | All |