Reserves:premium from prior year is defined as which expression?

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Multiple Choice

Reserves:premium from prior year is defined as which expression?

The quantity reflects updating the prior-year reserves to include the amount that will be incurred as losses develop over the next year, then comparing that to the prior year’s earned premium. You take the reserves at the start (prior year), add the amount of loss development that occurs over one year, and divide by the premiums earned in the prior year. This captures the expected growth in reserves due to ongoing development while staying aligned to the same year’s premium base. Using two-year development would overstate the needed reserves for this horizon, and using only the reserves themselves would ignore subsequent development.

The quantity reflects updating the prior-year reserves to include the amount that will be incurred as losses develop over the next year, then comparing that to the prior year’s earned premium. You take the reserves at the start (prior year), add the amount of loss development that occurs over one year, and divide by the premiums earned in the prior year. This captures the expected growth in reserves due to ongoing development while staying aligned to the same year’s premium base. Using two-year development would overstate the needed reserves for this horizon, and using only the reserves themselves would ignore subsequent development.

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