ISO Flashcards
Calculate ISO Experience Mod
Mod = Z*(AER - EER)/EER
AER = (Actual Limited Losses + Expected Development) / CSLC
EER = Expected Limited Losses/CSLC
CSLC is expected ultimate unlimited losses
It is used for rating GL policies
What are the 4 main differences between ISO Mod and NCCI Mod
- Unlike NCCI experience mod, ISO mod is not a factor, but rather a %
- ISO is no-split plan (NCCI is single split)
- ISO only uses losses at basic limits (MSL)
- ISO responds primarily to frequency of prior losses and less to severity
What is the ISO Experience period
Similar to NCCI: 3y of actual experience lagged 1y
There are exceptions (like NCCI) and as little as 1y could be used.
List the 3 methods to calculate CSLC and when to use them
- Standard Method
Can be used iff exposures have been fairly steady (no dramatic change in exposures during or since experience period for reasons other than inflation) - Present Average Company Rate Method
Would be used if exposures have changed significantly during or since experience period for reasons other than inflation + you have a special measure of exposures for both prospective policy and historical policies - Historical Exposures at Present Company Rates Method
Would be used if exposures have changed significantly during or since experience period for reasons other than inflation + you have exposure data, basic limits rates and current ILFs
Define CSLC
Expected losses for the risk subject to basic policy limits with adjustments made for trend levels and coverage basis to make expected losses comparable to historical actual losses
Calculate CSLC under Standard Method
BLEL_sl = Company ELR * Basic Limits Prem_sl
CSLC_y,sl = BLEL_sl * Table13B PAF_sl * Table13C PAY_y,sl * Detrend5B_y,sl
CSLC = sum over sl and years
13B factors are the same for each year
13C are 1 if occurrence basis year (varies by y)
Calculate CSLC under Present Average Company Rate Method
2 main differences with standard approach:
- BLEL varies by year (in addition to SL)
BLEL_y,sl = (Prem_sl/Prospective Exposures) * HistoricalExposures_y * ELR - Detrend factor used from table 14 will be based on rule 5C instead of 5B
Rule 5B adjusts for both PP trend and exposure trend
Rule 5C adjusts only for PP trend
BLEL values based on historical levels so no need to trend exposures
Calculate CSLC under Historical Exposures at Present Company Rates Method
BLEL_y,sl = Exposures_y * BasicRate_y,sl * ELR * ILF_y
CSLC_y,sl = BLEL_y,sl * Detrend5C_y,sl
CSLC = sum over years and sl of CSLC_y,sl
No need to apply 13B and 13C PAFs since we are using current rates in each year of experience.
PAFs are used in other methods since premium you start with does not necessarily match policy types in historical periods.
Complete Mod calculation
- Once we have CSLC, we can lookup EER, MSL and Z in table 16
- Calculate AER
Expected Dev = CSLC_y,sl * EER * LDF_y,sl
age = valu date - start of historical period
LDFs can be found in table 15
If experience altered due to changing carriers, use table 11B instead of table 15
If historical claims-made policy -> LDF are 0!!!!!!
What are the schedule rating and experience rating eligibility criteria based on Z
Z >= 0.03 so eligible for schedule rating
Z >= 0.07 so eligible for experience rating
Contrast ISO and NCCI based on credibility range
ISO credibility goes up to 100%, NCCI always smaller than 100 (because of k constant)
Contrast ISO and NCCI based on ALAE (& other expenses)
ISO: includes in mod
NCCI: excluded from mod
Contrast ISO and NCCI based on benefit levels
ISO not relevant
NCCI adjusted in expected losses
Contrast ISO and NCCI based on PAFs
ISO: use for claims-made policies
NCCI: no need since no claims-made policies
Contrast ISO and NCCI based on trending of losses
Same: no trending of actual losses, detrend of expected losses
