Bank Accounts as a Tool for Retrospective Analysis of Experience on Long-Tail Coverages

This paper presents a model for the retrospective analysis of experience on long-tail coverages. The model chosen is a "bank account" model which considers separately the profitability of each exposure period. The model treats premium income and interest earnings as bank account deposits, and loss payments, expense payments and interest charges as withdrawals. The exposure period results are calculated on three different bases: traditional underwriting profit/loss, net operating result at current value, and net operating result at exposure period value. Results are also displayed graphically for an effective presentation of the profitability/unprofitability of the exposure period. A model of this type is a valuable tool for communicating financial results to management and others in an effective and straightforward manner. It is particularly helpful in the evaluation of long-tail lines of business.