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Foundations of Casualty Actuarial Science

financing program. Those costs may include different
items, such as excess insurance premium and a risk
margin and exclude others, such as taxes and profit.
Nontraditional risk financing mechanisms and individual
entities

Allocating risk financing costs back to units also may
want to allocate all costs associated with the risk
financing program. Those costs may include different
items, such as excess insurance premium and a risk
margin, and exclude others, such as taxes and profit.
Nontraditional risk financing mechanisms and individual
entities allocating costs back to units and even some
insurers may want to allocate only some subset of costs,
such as losses, ALAE, and ULAE, with other costs
treated in different manner.

Part of determining what is to be allocated involves
determining the basis on which policies are written or
on which funding occurs. This is necessary so that the
various components subject to the allocation are
appropriately tabulated and adjusted. Also, it is important

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