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CAGR: Compound annual growth rate

Constant annual growth rate that, applied under compound interest, transforms an initial value into a final value over n years.

Definition

Gross premiums that go from 100 to 150 over five years have a CAGR of 8.4%: (150/100)^(1/5) − 1, whatever the path between the two years. This is the compound annual growth rate, CAGR = (Vn / V0)^(1/n) − 1. It smooths intermediate fluctuations and gives a synthetic view of long-period performance. In insurance, it is used to analyze premium growth (GWP CAGR), losses, ratios or assets. CAGR can only be calculated if initial and final values have the same sign. At 8% a year, premiums double in about nine years (rule of 72).

Its 3 cross-references, woven across the glossary's 18 categories
CAGR: Compound annual growth rate: Finance glossary illustration, AlgoPolis
Example

2019 GWP: 100 M EUR. 2024 GWP: 140 M EUR. CAGR = (140/100)^(1/5) − 1 = 1.4^0.2 − 1 ≈ 6.96% per year.

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