Chapter Two - Fundamental Building Blocks of Insurance Profitability Measurement

There are numerous approaches to the measurement of insurer profitability and ratemaking. On the surface, these approaches appear to be quite different since the results produced by them can, and often do, yield conflicting results. Certainly contüsion is created when figures and results differ, and it is unclear as to the cause of the difference. This is especially true in the area of ratemaking, given the perspectives and agendas of the various parties involved. In order to assist in furthering the dialogue among interested parties, it is important that the sources of differences be understood. These differences can result from the data used, from the models used to process and present the data, from the assumptions used in the model, and from fundamentally different philosophical approaches.