AU 302 - Advancing Commercial Underwriting Strategy
AU 302 moves from single accounts to the portfolio: appetite, segmentation, pricing strategy, accumulation control and renewal direction. The exam tests whether you can defend a strategy with numbers.
Strategy is allocation
An appetite statement defines target, acceptable and prohibited classes, and it must be paired with an authority grid that says who can approve exceptions. Profit is measured by segment, not by book-wide average. Combined ratio = loss ratio + expense ratio; a segment above 100 is consuming capital, and growth in it enlarges the deficit.
Levers and their cost
Growth and remediation can be bought with rate, terms or commission. Terms are usually the cheapest and most defensible: deductibles, sublimits, coinsurance, reporting requirements, protective safeguards endorsements, warranty of alarm maintenance. Rate is visible to the market; commission is expensive and hard to reverse.
Accumulation control
Catastrophe exposure is managed in aggregate, by territory, construction and occupancy. Track probable maximum loss and total insured value concentration by ZIP or county, and cap it. A profitable non-catastrophe book can be erased by one windstorm.
Worked example
A regional book shows habitational at 112% combined, restaurants at 94%, artisan contractors at 88%. Growth pressure favors writing 300 new habitational policies. Reasoning: habitational is loss-driven and catastrophe-concentrated, so adding volume at inadequate rate grows the deficit. Instead: non-renew the worst 15% (loss ratio above 150%, older wiring, no alarm), file +9% on renewals, move the AOP deductible to $10,000, and cap concentration at 12% of total insured value per ZIP. Redirect new-business capacity to contractors and restaurants with a modest rate increase and stricter subcontractor certificate verification.
Traps
Measuring success by premium volume; ignoring catastrophe aggregation until after an event; "we will make it up on volume"; failing to audit delegated or MGA authority; granting exceptions without documenting the compensating terms.