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Policy Year vs. Accident Year vs. Calendar Year

Explanation of the differences among these type of data for workers compensation insurance.;

Policy year information reflects an actuarial perspective or look at what has happened to a particular policy year over time. A policy year is based on policies with effective dates in a twelve month period. So, policy year 2016 data are those policies with effective dates between 1/1/16 and 12/31/16. For example, if you look at policy year 2016 today, it would have everything that had developed on a policy since 2016; all losses, premiums, reserves, expenses, allowances, etc. up to this point in time.

Accident year data is based on accidents that occur within a twelve month period. Thus, accident year 2016 is based on those accidents that occurred between 1/1/16 and 12/31/16.

To compare, a policy could be effective 9/1/16 and an accident could occur on 2/1/17. The loss would be included in policy year 2016 and accident year 2017. If the loss occurred on 12/1/156 the amount would be reported in policy year 20156and also in accident year 2016.

Calendar year information in contrast, is more from an accounting perspective and contains information about each policy year. For example, policy years 1996-2016 could all have transactions going on in calendar year 2016, and that is what calendar year information is showing - many policy years with activity within one calendar year.

Looking at policy year 2006 in calendar year 2014, we would not likely see any premium activity still occurring during 2014, but we would still see loss activity. So the results for calendar year 2014 would include that loss information for policy year 2006, along with the loss information for all other policy years that had transactions during the 2014 year. As we approach the more current policy years, we would also see more premium activity going on for those years as well as loss activity.

Note: Calendar year combined ratios may be lower than accident year if they include reserve releases from prior years. Accident year data reflect incurred losses (paid and reserved) for claims that occurred in that specific year, and are generally viewed as more reflective of the industry's current financial condition.

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The material in this document has been prepared and shared for informational purposes only and should not be relied upon as legal advice on any particular situation.