Page 104 - ic92 actuarial

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where
C = claim count

or, where frequency is per unit of exposure
P =F1 X S

So, in other words, pure premium equals the product of
frequency per unit of exposure and severity.

g) Expense profit and contingencies - In order to
determine the price for a specific insurance coverage,
appropriate provisions must be made for the expenses
(except loss adjustment expenses).

The profit provision is generally termed profit and
contingencies provision, reflecting the fact that profits,
if any, should be based upon actual results, and not on
expectations or projections. For the purpose of this
discussion, we will distinguish between fixed expenses
per unit of exposure, which do not depend upon
premium, and variable expenses which vary directly
with price.

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