Abstract
Insurers typically earn greater profits on policies that have been with the insurer for a number of renewal cycles than on new business. This tendency is known as the aging phenomenon and is believed to occur on all lines of business. Although the aging phenomenon is common knowledge, no mathematical methods for incorporating this phenomenon into pricing decisions have been documented. This paper sets forth a procedure for determining the maximum acceptable loss ratio on new business that will be profitable for the insurer over its entire renewal cycle by incorporating a discounted cash flow analysis of future profits.
Volume
LXXVI
Page
24-44
Year
1989
Categories
Actuarial Applications and Methodologies
Dynamic Risk Modeling
Actuarial Applications and Methodologies
Ratemaking
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
Publications
Proceedings of the Casualty Actuarial Society
