Pricing Adequacy Calculator
Assess whether collected premiums are sufficient to cover losses, expenses, and profit targets.
Inputs
$
$
$
$
Results
Required Premium
$9,066,667.00
≈ 22 average U.S. homes
Adequacy Ratio
88.2%
Surplus / (Deficit)-$1,066,667.00
Break-Even Premium$8,400,000.00
Adjusted Loss Ratio68.8%
How to Use This Calculator
- Enter the current average filed rate.
- Input the indicated rate change from the actuarial rate analysis.
- Set the expense and profit loading components.
- Review the adequacy percentage — how close the current rate is to the indicated rate.
- File a rate revision when the indicated change exceeds regulatory threshold or company tolerance.
How the result changes with Projected Ultimate Losses
| Projected Ultimate Losses | Required Premium | Adequacy Ratio |
|---|---|---|
| $1,000,000,000.00 | $1,335,066,667.00 | 0.6% |
| $3,500,000,000.00 | $4,668,400,000.00 | 0.2% |
| $6,500,000,000.00 | $8,668,400,000.00 | 0.1% |
| $9,000,000,000.00 | $12,001,733,333.00 | 0.1% |
What each input means
- Collected Premium
- Total premium collected at current rates
- Projected Ultimate Losses
- Projected ultimate incurred losses for the period
- Fixed Expenses
- Fixed operating expenses (salaries, rent, systems)
- Variable Expense Ratio (%)
- Variable expenses as a percentage of premium (commissions, taxes, fees)
- Target Profit
- Desired underwriting profit in dollars
How this is calculated
Worked example, using the default values
- Identify Input Parameters4 parametersCollected Premium = 8000000, Projected Ultimate Losses = 5500000, Fixed Expenses = 800000, Variable Expense Ratio (%) = 25 = 5 input(s) provided
- Calculate Required PremiumRequired Premium9066667 = $9,066,667
- Calculate Adequacy RatioAdequacy Ratio88.2 = 88.2%
- Calculate Surplus /Surplus /-1066667 = $-1,066,667
- Calculate Break-Even PremiumBreak-Even Premium8400000 = $8,400,000
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