Skurnick - Table L

Question 1

According to Skurnick’s “The California Table L”, describe the problem that Table L was created to solve.

Answer 1

The overlap between the following charges was eliminated in Table L, which has the advantage of reflecting both the:

1. Charge for limitation of total losses and
2. Charge for limitation of individual accidents

Table M only reflects the charge for limitation of total losses.

Question 2

According Gillam in his review of Skurnick, how does the NCCI’s retrospective rating plan manual for WC and EL solve the problem in part a.

Answer 2

The NCCI plan uses a formula shift in table M columns to approximate a limited loss table M.
Since the selection of a loss limit reduces the skewness of claim size distribution, and hence the loss ratio distribution, this process can be modeled by a shift in columns in table M to one applicable for a larger size risk(ie more stable loss distribution).
To determine ELG, E is adjusted as follows:
ELG = E * (1+0.8F/E)/[1-F/E] and F/E = LER

Question 3

List one advantage and one disadvantage of Table L approach

Answer 3

Advantage: from a mathematical point of view, table L represents an advance over Table M.

• Every important table M formula has a table L generalization
• Table M is a special case of Table L

Disadvantage:
since the charge for a pre-determined accident limit is build into the table, it cannot be used for alternate accident limits

Question 4

One advantage and one disadvantage of Table M approach

Answer 4

Advantage: the column shift procedure provides means to account for the effects of inflation. (NCCI tables are update regularly due to inflation)

Disadvantage: the column shift procedure is only an approximation.

Question 5

What is meant by the overlap in a retrospective rating plan with a max prem and per-accident limit.

Answer 5

The overlap is the loss that is eliminated from the per accident limit, since it is already included in table M charge.