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

The book " Introduction to Ratemaking and Loss Reserving for Property and Casualty Insurance

• Solvency: Under-reserving makes an insurer look profitable when it is actually insolvent.
• Regulatory Compliance: Insurance regulators require adequate reserves to protect policyholders.
• Ratemaking Input: Historical losses (adjusted for development) are the raw data for future pricing.

• Law of Large Numbers: Rates are usually determined for a large pool of homogeneous risks to predict average losses.
• Credibility: How much weight should be given to the insurer's own data versus industry data? Small books of business have low credibility.
• Trend: Adjustments must be made for inflation (social and economic) affecting severity and legal environments affecting frequency.

1. CAS (Casualty Actuarial Society): The professional body that educates and certifies P&C actuaries.
2. Statement of Principles (SOP): Defines the standards for setting reserves (must be reasonable, based on data, etc.).
3. Actuarial Opinion: A regulatory requirement where a "Appointed Actuary" signs off that the company's reserves make "reasonable provision" for obligations.
4. NAIC (National Association of Insurance Commissioners): Sets the statutory accounting rules that insurers must follow regarding reserving (e.g., Statement of Statutory Accounting Principles No. 55).