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producing a ruin probability of less than, or equal to
the acceptable level. The difference between the
resultant adjusted rate level assumption and the rate
level assumption with no risk margin is then used as
the profit and contingencies provision.

Q14. Discuss the concept of increase limits rate
making.

Ans. While the level of attention given to the development of
rates for increased limits is less than the level of attention
given to the development of basic rates, the number of
increased limits factors that exceed 2,000 should serve
to focus attention on this important element of manual
ratemaking.

The severity trend in excess layers increases as the
lower bound of the layer increases. This effect alone
is sufficient to produce a general upward movement
in increased limit factors. When combined with the
effects of our increased litigiousness as a society, the
need for regular review of increased limits rate
adequacy should be apparent.

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