PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

THE APPLICATION OF FUNDAMENTAL VALUATION PRINCIPLES 2874.4. Future Written BusinessFor property/casualty insurance companies, in contrast withlife insurance companies, the distinction between new and renewalbusiness is often not meaningful for developing financialprojections for future written business. For direct writers of personallines business, however, for whom the initial cost of acquiringnew business and the associated expected loss ratio differssubstantially from the expenses and loss ratios associated withrenewal business, the distinction between new and renewal businessmay be very important for developing financial projections.Financial projections are usually developed by line of businessor business segment corresponding to the detail in which thecompany being valued provides its premium forecasts. The keyelements to be estimated by year and line of business are² Gross written premium;² Net written premium;² Accident year gross and ceded loss and loss expense ratios;² Gross commissions and ceding commissions;² Other overhead expenses (premium taxes, general and administrativeexpenses, other acquisition costs);² Collection schedules for premium;² Payment schedules for commissions and other overhead expenses;² Payment pattern for gross and ceded accident year loss andloss adjustment expense; and² Collection pattern for ceded reinsurance recoveries.For the book of business in total, the key elements to be estimatedare² Investment yield on investible assets,