The contribution approach in practice

Document description

The expression of profitability by policy class in contribution format rather than using traditional "underwriting profit" methods has considerable advantages, namely: 1) Investment income (on technical reserves) is included on an explicit basis making results on long-tail classes much easier to interpret. 2) Overall expenses include a large proportion of costs which are not strictly allocatable between the various policy classes. The contribution method does not incorporate an arbitrary and often grossly misleading split of these costs between classes.