DEFINITION of 'Accident Year Experience'

Accident year experience shows the premiums earned and losses incurred during a specific period of time. An accident year experience is typically examined for a twelve-month period, called the accident year. The exposure period is usually set to the calendar year, and starts on January 1.

Accident year experience is used to indicate whether premiums effectively cover an insurer’s losses. A negative statistic indicates that the premiums were not enough to cover losses. Accident year experience typically includes losses when they occur, not when they are reported. It also includes premiums earned during the same period of time, regardless of when the premiums were underwritten.

BREAKING DOWN 'Accident Year Experience'

There are two types of accident year experience calculations: calendar year experience and policy year experience.

Calendar year experience includes losses incurred during the calendar year (typically starting on January 1) and premiums earned during the same period of time. Losses include incurred but not reported (IBNR) losses, and changes to loss reserves.

Policy year experience includes premiums and losses from policies that are renewed or are underwritten during a given year. Losses (including loss reserves) from policies are only included if the policies are renewed or underwritten during the year, and premiums are only included if they are earned during the same time. During the course of the year the calculation is considered to be “developing,” which means that the calculation cannot be finalized until losses are settled.

The difference between the two methods is that: 1) the calendar year experience looks at losses from claims made during a specific year (emphasis on “loss”); and 2) the policy year experience looks at how a specific set of policies — those that come into effect during the year — are exposed to losses (emphasis on “exposure”).

Actuaries use policy year data because it matches claims made against specific policies. The disadvantage is that insurers continuously underwrite new policies, which makes the analysis of policies underwritten late in the calendar year different. In fact, these policies will stretch over two calendar years. The most accurate way to calculate accident year experience is to divide total losses (losses incurred plus loss reserves) by exposure earned, which is the amount of premiums exposed to loss over a given period of time. Because this method can take more time to calculate, earned premiums may be calculated using the account earned method.

  1. Policy Year Experience

    Policy year experience describes the relationship between the ...
  2. Calendar Year Experience

    Calendar year experience is the difference between the premiums ...
  3. Losses Incurred

    Losses incurred refers to benefits paid to policyholders during ...
  4. Experience Rating (Insurance)

    Experience rating (insurance) is the amount of loss that an insured ...
  5. Loss Cost

    Loss cost is the amount of money an insurer must pay to cover ...
  6. Retrospectively Rated Insurance

    Retroactively rated insurance refers to a policy with a premium ...
Related Articles
  1. Financial Advisor

    Top Tips for Deducting Stock Losses

    Investors who know the rules can turn their losing picks into tax savings. Here's how to deduct your stock losses.
  2. Insurance

    6 Things That Spike Your Auto Insurance

    Several factors can cause your auto insurance to rise. Knowing what these are can help you find the best deal.
  3. Personal Finance

    Increase Your Happiness Capital by Investing in Experiences

    Most people enjoy experiences over things because experiences are usually shared with others.
  4. Taxes

    How to deduct stock losses from your tax bill

    Learn the proper procedure for deducting investment losses and get some tips on how to strategically structure them to lower your income tax bill.
  5. Insurance

    It's Raining Lawsuits: Do You Need An Umbrella Policy?

    This type of insurance protects your assets and future wages against lawsuits. Find out if it might benefit you.
  6. Insurance

    Does Buying a Guaranteed Life Insurance Policy Make Sense?

    When does it make sense to buy a life insurance policy that is guaranteed?
  7. Insurance

    How to Find the Right Car Insurance

    Finding the right car insurance can be difficult. However with these strategies, you can get the most for your money, protect your assets and your health.
  8. Investing

    Railroad Safety Concerns Becoming Common Headline (UNP)

    The rails continue to disappoint on safety measures as a pedestrian is struck on a Union Pacific-operated line.
  9. Insurance

    12 Car Insurance Cost-Cutters

    Car insurance rates are on the rise. If car insurance costs are dragging you down, use these tips to free yourself from some of the extra weight.
  1. How do I calculate the combined ratio?

    Learn about the combined ratio and how it is calculated under a financial basis and a trade basis using the loss ratio and ... Read Answer >>
  2. Why is accidental life insurance so inexpensive?

    Accidental life insurance is an inexpensive way of obtaining life insurance coverage for yourself or someone else in your ... Read Answer >>
Hot Definitions
  1. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  2. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  3. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  4. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  5. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  6. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
Trading Center