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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