What is Calendar Year Experience?

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 Does Calendar Year Experience Work?

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 Does Calendar Year Experience Matter?

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.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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