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Pricing Large Insureds

This seminar on ratemaking discusses the reasons why data for large insureds is not fully credible, including factors such as changes in operations, lack of complete data, and adjustments using claim count information.

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Pricing Large Insureds

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  1. Pricing Large Insureds Christopher Claus American Re-Insurance 1999 Seminar on Ratemaking

  2. Reasons Data for Large Insureds is Not Fully Credible(not an exhaustive list) • Lack of Volume/Size of Insured • Changes in Operations/Mergers & Acquis. • Significant Growth/Discontinued Operations • Changes in Limits Profile over Time for Group of Insureds • Long Tailed Lines Lacking Sufficient Historical Experience

  3. Reasons Data for Large Insureds is Not Fully Credible(Continued) • Changes in Technology/Exposures • Lack of Complete Data • Changes in Geographic Spread • Expansion into New Markets/Products • Changes in Claims Handling

  4. Areas Where DataMay Be Blended • LDF’s • Unlimited vs. Limited, Excess vs Ground-up • Changes in Reserving and Payment Patterns • Changes in Underlying Exposures • Selecting Tail Factors • Adjustments Using Claim Count Information • Report Year vs. Accident Year Triangles • Review ALAE Separately • Closed-to-Reported Ratios

  5. Adjust Industry LDFs based on Trended Closed to Reported Ratios

  6. Areas Where DataMay Be Blended • Trend • ISO Sources • WC - Medical Cost Inflation, Wage Inflation, Benefit Levels • Trend Based on Client Data • Annual Trend Rate vs Actual Indication • Remember to Review Frequency Trend

  7. Areas where DataMay Be Blended Data • Severity Distributions • ISO Data • Fit to Client Data • Blending Client Fit with Industry

  8. Example of BlendingSeverity Distributions • Situation: Pricing High Excess Layer • Can Price Lower Layers • But Need Severity Distribution to Price High Layers • Problem: How to Adjust Severity Distribution to Reflect Clients Data

  9. One Method of BlendingSeverity Distributions

  10. Graph of Empirical vs Possible Pareto Distributions

  11. Comparison ofPareto Relativities

  12. Comparison ofExcess Losses

  13. A Report Year Approach • Report Year Approach to Price Accident Year Coverage

  14. Company A - Accident Year Reported Loss+ALAE Development

  15. Company A - Report Year Reported Loss+ALAE Development

  16. Company AReport Year Loss+ALAE Severity

  17. Company AAccident Year Claim Count

  18. Company A Estimated 1999 AY Loss+ALAE

  19. Company A - Comparison of Accident Year Development Estimate

  20. Review of Results • Historical Loss Ratios • Historical Pure Premiums

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