1. Underwriting Definition - “the selection of policyholders through hazard recognition and evaluation, pricing, and determination of policy terms and conditions” Purpose - “the development and maintenance of a profitable book of business” Must avoid adverse selection - applicants have greater loss exposure than general population

2. Evolution of Underwriting Pre-1950s - Monoline Policies Underwriter’s career path Map clerk Junior underwriter (apprenticeship) Replaced senior underwriter at retirement Multiple-Line Underwriting Result of McCarran-Ferguson Act - 1945 More career flexibility Intensive training programs in several lines Continuing education Underwriting Developments Technology

3. Underwriting Activities Line underwriting Selecting insureds Classifying risks Determining proper coverage Determining appropriate rate or price Providing service to producers and policyholders Staff underwriting Formulating policy Evaluating experience Researching and developing coverages and policy forms Revisng rating plans Preparing underwriting guides and bulletins Conducting underwriting audits Participating in industry associations Conducting education and training

4. Establishment of Underwriting Policy Principal Dimensions Lines of business Territories Forms, rates and rating plan Constraining Factors Capacity Premium/Surplus ratio Regulation Personnel Reinsurance

5. Implementation of Underwriting Policy Guides and Bulletins Provide for structured decisions Ensure uniformity and consistency Synthesize insights and experience Distinguish routine form nonroutine decisions Avoid duplication of effort Assist underwriter in policy preparation Measuring Results Industry Trends Difficulties Premium volume changes Loss development delay Standards of performance Selection Product mix Pricing Accommodated risks Retention ratio Success ratio Service to producers

6. Underwriting Process Gathering information Identifying, developing and evaluating alternatives Selecting an alternative Implementing the decision Monitoring the exposures

7. Gathering Information Sources Producer Application Consumer investigation reports Government records Financial rating services Loss data Inspection reports Field marketing personnel Premium auditors Claim files Production records Hazard Evaluation Physical hazards Moral hazards Weak financial condition Undesirable associates Poor moral character Morale hazards Poor personality traits Poor management

8. Identifying, Developing and Evaluating Alternatives Basic decision:Accept/Reject/Modify Modifications Loss control program Change rates, rating plans or policy limits Experience rating Schedule rating Retrospective rating Policy limits Amend policy terms and conditions Use facultative reinsurance

9. Selecting an Alternative and Implementing the Decision Selecting Alternative Underwriting authority required Presence of supporting business Mix of business Producer relationships Regulatory constraints Implementation Communication of decision Execution of appropriate documentation Recording information

10. Monitoring Changes in loss exposure New driver Notice of loss Monitoring a book of business (by tracking loss ratio) Class of business Territory Producer