The same $800 claim can land in accident year 2024, calendar year 2025, and report year 2025 all at once. Choosing the right aggregation view, and translating between them, is the first skill ratemaking rests on.
A dollar of premium, a loss, or an exposure unit must be filed under some organizing period before you can build a rate. Judge each aggregation method against three named objectives:
- Accurately match losses and premium for the policy.
- Use the most recent data available.
- Minimize the cost of data collection and retrieval.
The four choices differ only in which date defines the year, and that single choice sets how each objective scores. Calendar year wins objectives 2 and 3: it closes fast and needs no re-tabulation, but it matches losses to premium worst because one year blends many cohorts. Policy year wins objective 1 with the cleanest match, yet scores worst on recency and cost because it matures slowest and requires tracking every policy.
Common mistakes
- Treating calendar year loss as a single accident cohort. CY 2025 loss of $100 blends payments and reserve moves on many accident years; it is not AY 2025.
- Forgetting the reserve-change term in CY incurred. Using only paid $400 instead of $400 + (−$300) overstates CY 2025 loss by $300.
- Filing a claim by the wrong date. An occurrence in November 2024 paid in 2025 is AY 2024, not AY 2025; the payment date drives calendar year, not accident year.
Bottom line
- Calendar year groups transactions by book date; it closes fast and never changes, but it mixes many accident and policy years and is cheapest to collect.
- Accident year groups losses by occurrence date; it develops until every claim settles and pairs cleanly with earned premium and earned exposures.
- Policy year groups premium and losses by policy effective date; it gives the best match of losses to premium, spans up to 24 months, and matures slowest.
- Report year groups claims by report date for claims-made coverage; in-force is a point-in-time snapshot of active exposures.
Exam shortcut
For any claim, write down its three dates (occur, report, pay). Occurrence sets accident year, report sets report year, payment (and reserve change) sets calendar year. Route each dollar accordingly. For calendar year incurred, always use paid plus the change in reserves, which equals ending case-incurred minus beginning case-incurred. If a problem gives you only paid, it is testing whether you remember the reserve term.
The full lesson (about 2,858 words, 19 min read) adds 3 worked examples, all 7 common mistakes, a self-check, free in the app.
Learning objectives
- A3
Browse all free Exam 5 lessons or jump into free Exam 5 practice questions.