Actuarial Note: Fixed and Variable Expenses

A variety of meanings appear to have been attached to the expression "fixed expenses," with the result that we sometimes find ourselves talking at cross-purposes. The intent of this note is to see if any clarification is possible. A cost which does not depend upon a particular variable is by definition constant, or fixed, with respect to that variable. For example, administrative costs do not depend upon premium rates although both may depend upon the value of money. A rate increase or a rate decrease does not affect the cost of underwriting, bookkeeping, etc. Administrative costs can therefore be logically regarded as fixed with respect to premium rates. Such costs, however, are obviously not fixed with respect to time since they depend upon the value of money and other factors, such as technology, which change with time.