Pricing in General Insurance

120 Pricing in General Insurance

9.2.3 Statistical Approach to Large Losses Inflation

In Section 9.1, we mentioned that the ination for large losses is not necessarily the same as

that for smaller losses. Because in many circumstances (for example, when pricing excess-

of-loss reinsurance), we are specically interested in the behaviour of large losses and

we do not even have visibility on losses below a certain threshold, we need to be able to

estimate large loss ination from a cohort of losses above that threshold. In what follows,

‘large loss’ means ‘loss above a given threshold’, in which the exact value of the threshold

will depend on ...