Underwriting Risk Calculator

Underwriting is the process of pricing a policy against the risk it covers, and this calculator illustrates the basic mechanics with simplified formulas rather than a real insurer's proprietary rating tables. Expected Loss is Probability of Claim times Expected Claim Amount -- the actuarial expected value of what the insurer will pay out, on average, in a given period. Underwriting Profit and Profit Margin compare that expected payout against Annual Premium, and depend on nothing else: Policy Value and Worst Case Claim have no effect on either. Risk Score instead blends Probability of Claim with how large Worst Case Claim is relative to Policy Value, capturing tail risk that Expected Loss alone misses -- a policy can have a low expected loss and still carry a high risk score if a rare but severe claim could approach the full policy value.

Risk-Adjusted Premium loads Expected Loss up by that Risk Score as a simplified margin for adverse deviation; it is completely unaffected by Annual Premium, since it represents what the premium arguably should be given the underlying risk, not a function of what is actually being charged. Reinsurance Coverage -- the percentage of risk ceded to a reinsurer -- reduces the insurer's own RETAINED exposure: Net Exposure (After Reinsurance) scales Policy Value down by that percentage, and Capital Requirement is likewise based on the net, reinsurance-adjusted Worst Case Claim rather than the gross figure, since real insurers hold capital against what they actually retain, not against risk they've ceded away. Risk Exposure (Tail Spread) is simply Worst Case Claim minus Expected Claim Amount, showing how much room exists between the average scenario and the worst one, while Projected Loss Ratio expresses Expected Loss as a percentage of Annual Premium -- a different lens on the same underlying relationship as Profit Margin. Real insurer risk loadings incorporate proprietary factors -- reinsurance treaty pricing, portfolio correlation, regulatory capital requirements, and company-specific underwriting appetite -- that vary by insurer and are not public, so treat Risk-Adjusted Premium and Capital Requirement here as illustrative simplifications, not a substitute for actuarial pricing.