October 2014
Intermediate to advanced
584 pages
22h 2m
English
Content preview from Pricing in General Insurance
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362 Pricing in General Insurance
22.4 Derivation of ILF Curves
ILF curves are normally derived by considering a large amount of market losses and
building a severity distribution and then an ILF curve by using the relationship ILF(x) =
E(min(X, x))/E(min(X, b)). Palmer (2006) lists a number of issues that arise in the derivation
of ILFs. Unsurprisingly, these are the very same issues that arise when trying to build a
severity curve based on loss data.
1. Some losses may be censored because of policy limits (e.g. if a claim is £7M and the
policy limit is £5M, we may only see the claim recorded as £5M).
2. Some losses may be the net of a deductible ...
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