Page 108 - ic92 actuarial

The Insurance Times

Adequately pricing a line of insurance involves substantial
judgement. The actuaries need to have proper
knowledge and understanding of underwriting,
economics, political and social factors apart from
mathematics and statistics.

Q4. Discuss the concept of pure premium
method.

Ans. The pure premium method develops indicated rates -
those rates that are expected to provide for the expected
losses and expenses and provide the expected profit
based on the following formula :
R= P + F
I-V-Q

Where
R = rate per unit of exposure
P = pure premium
F = fixed expense per exposure
V = variable expense factor
Q = profit and contingencies factor

The pure premium used in the above formula is based

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