Page 121 - ic92 actuarial

Foundations of Casualty Actuarial Science

There are three methods available for the review of
increased limits experience. They are:
(i) Trending individual losses - This method involves

the application of severity trend to a body of
individual loss data. Generally, closed claim data
are used in order to avoid the problems associated
with projecting loss development on individual
claims.

First, an annual severity trend factor is determined.
This factor is then applied to each closed claim for
the period, from date of closure to the applicable
effective period for the indicated increased limits
factors.

The resulting distribution of trended closed claims
is then used to determine the appropriate increased
limits factors.

The application of this method requires the use of
unlimited losses as the projection base. Since the
insurers are usually unaware of the unlimited loss

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