Underwriting Profit in Fire Bureau Rates

In reviewing bureau rates for every line of business, it has been customary to interpret the requirement of adequacy to mean that rates should be adequate for the average company. There have been suggested departures from this rule. Albert Mowbray, the actuary mainly responsible for workmen’s compensation rating procedures, held that rates must be adequate for the marginal or least fortunate companies and the author of this note suggested in 1951 that rates should be adequate for any individual prudent member company. On the other hand, insurance officials have sometimes claimed that the expense assumptions used in the rating formula should be somewhat less than the average actually experienced by all companies. However, these various interpretations of adequacy have never departed to any major extent from the principle that the rates should be adequate for the average company and there can be no doubt that the Commissioners’ 1921 profit formula for fire insurance intended to provide an underwriting profit of 5% for the average company.