FMRP

Accident Year Experience

Simplistically, the matching of all losses occurring (regardless of when the losses are reported) during a given twelve-month period of time (usually a calendar year) with all premium earned (regardless of when the premium was written) during the same period of time. More specifically, the total value of all losses occurring (losses paid, plus loss reserves) during the defined twelve-month time period (i.e., the date of loss falls within the time period) is divided by the Earned Premium for this same exposure period. As the experience is developing, loss reserves are used in the calculation, but the ultimate result cannot be finalized until all losses are settled. While any twelve-month period can be used to define the exposure period, the year beginning January 1 is normally used. The most accurate method uses Exposure Earned (see its definition under Earned Premium) as the denominator, whereas in practice Accounting Premium (see its definition under Earned Premium) is frequently used as a matter of convenience. Calendar Year Experience: Simplistically, the matching of all losses incurred (not necessarily occurring) within a given twelve-month period, usually beginning on January 1, with all premium earned within the same period of time. Incurred losses will include the change in IBNR More specifically, the total value of all losses incurred (not necessarily occurring) during the calendar year is divided by the Accounting Earned premium for this same exposure period. Losses incurred are equal to the sum of losses paid, plus the outstanding loss reserves at the end of the year, less the outstanding loss reserves at the beginning of the year. Once calculated for a given period, calendar-year experience never changes. Policy Year Experience: Simplistically, the segregation of all premiums and losses attributable to policies having an inception or renewal date within a given twelve-month period. More specifically, the total value (losses paid plus loss reserves) of all losses arising from (regardless of when reported) policies incepting or renewing during the year is divided by the fully developed earned premium for those same policies. The finally developed earned premium will always equal the written premium for those policies. Policy-Year Experience resembles Accident Year Experience in that, while the experience is developing, loss reserves are used in the calculation, but the ultimate result cannot be finalized until all losses are settled. Policy-Year Experience is different in that premiums earned from policies incepting during a one-year period of time will earn over the course of both the year of inception and a later year(s). Similarly, losses to be included will be occurring over the same extended time period. Also known as Underwriting Year.