Over what period should an insured company's claims performance or loss ratio be evaluated?

Evaluating an insured company's claims performance or loss ratio over a period of three years provides a more comprehensive understanding of its risk management and claims trends. This duration is significant because it allows for the consideration of various factors that can influence claims experience, such as the cyclical nature of certain risks, changes in claims handling processes, or shifts in underwriting criteria. A period of three years typically smooths out short-term fluctuations in claims activity that might occur due to temporary events or market conditions, offering a clearer picture of the company's long-term performance and stability.

This three-year evaluation window is also helpful for actuaries and underwriters when analyzing trends and making future projections regarding reserves and premiums. Observing a longer term, like five years, may sometimes be useful for broader insights, but three years strikes a balanced approach that accommodates both interim assessments and long-range strategic planning. Evaluating for just one or two years might not capture significant trends or variations because of smaller sample sizes and the potential impact of abrupt or isolated incidents on the claims experience.