Rate Filing Calculator

Because the two expense types behave differently as rates change. Variable expenses (agent commissions, premium taxes) are set as a percentage of premium, so they scale automatically with any rate change -- that's why they reduce the Permissible Loss Ratio denominator. Fixed expenses (rent, salaries) are a roughly constant dollar amount regardless of the premium rate charged, so -- once expressed as a ratio to CURRENT premium -- they need to be covered in full, the same way losses do. Standard actuarial ratemaking (the loss ratio method, as laid out in the CAS's Basic Ratemaking text by Werner & Modlin) adds them to the loss side of the calculation for this reason.

It means current rates are exactly adequate -- the loss ratio plus fixed expense ratio exactly matches what's permissible given the variable expense ratio and profit target, so Required Premium equals current Earned Premium. A positive Indicated Rate Change means rates are inadequate and need to increase to hit the profit target; a negative one means rates could decrease while still meeting it.

No. The loss ratio method used here is one of the two most common approaches -- the other is the pure premium method, which works from loss and expense amounts per exposure unit rather than as ratios to premium. Real rate filings also typically apply loss trend (projecting losses forward to the future policy period) and loss development (accounting for claims not yet fully reported or settled), which this simplified calculator doesn't include.

No -- an actual rate filing is a much more detailed regulatory submission including trended and developed loss data, expense studies, credibility weighting against industry data, supporting actuarial exhibits, and often an actuary's signed statement of opinion. Most U.S. states require rate filings to be reviewed and approved (or at least filed and not disapproved) before new rates take effect. This calculator illustrates the core loss-ratio-method mechanics, not a filing-ready indication.

Ultimate Losses are meant to represent the fully-developed cost of claims from the experience period, including losses reported but not yet fully paid and losses incurred but not yet reported (IBNR). Using only currently-reported losses would understate the true loss ratio for a still-developing accident period, since claims often take months or years to fully report and settle -- this calculator assumes you're providing an already-developed ultimate figure.