Expenses and Profit Loading in Ratemaking

Free SOA Exam FAM (Fundamentals of Actuarial Mathematics) lesson in Pricing and Reserving for Short-Term Insurance Coverages. 9 min read, ~1,349 words.

Gross Rate = Pure Premium / (1 - V - Q) + Fixed Expenses per exposure. PLR (Permissible Loss Ratio) = 1 - V - Q, the fraction of each dollar available for losses. Variable expenses: commission, premium tax, acquisition (% of premium). Fixed: admin per exposure. Divide, don't multiply...