Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Calendar Year Experience

What it is:

In the insurance industry, a calendar year experience (also called accident-year experience or underwriting-year experience) is the difference between the premiums earned and the losses incurred during a calendar year.

How it works (Example):

Let's say Company XYZ had 1,000 customers, each of whom has a policy that has a $5,000 annual premium. The insurer earned $5 million. However, of the 1,000 customers, 20 had accidents and made claims on their policies for $2 million. Accordingly, Company XYZ's calendar year experience was $5,000,000 - $2,000,000 = $3,000,000.

Why it Matters:

An insurer's calendar year experience is a measure of how well a company underwrites insurance. That is, it measures the company's ability to make good bets on people who are less likely to make claims.

It is important to note that a company may earn a premium or incur a loss at one point in time and actually receive the cash (or pay out the cash) associated with those events later. Accordingly, a calendar year experience should not be mistaken as a measure of how much cash an insurer "kept," "collected," or "disbursed" in a year.