View Full Version : 2006 #42 - ILF method wrt basic limit

03-15-2011, 09:49 AM
The problem shows six claim amounts (50k, 500, 600 200, 10, 90) and ILFs as follows: 1.00 for 10k, 1.50 for 100k, 2.00 for 250k, and 2.50 for 500k. They give earned exposures as 1,000 and the basic limit as $10,000.

How does the basic limit of $10k affect the loss amounts? Is it that only ground-up losses greater than $10,000 are counted, and included from first dollar? That is, in this case there were only six claims that exceeded $10k ground-up?

Is there any way an exam writer could change the basic limit to throw us a curve ball on the exam?

Vorian Atreides
03-15-2011, 10:46 PM
"Basic Limits" is a value for which a baseline can be established for comparing the indicated (pure) premium for various limits of liability. It's usually a low value since you want low volatility for it's measurement.

And normally, it's associated with an ILF = 1.00; however, in practice, the minimum limits (which is different from "basic limits") offered by a company can be much larger. Consider that ISO uses $25k (at least I think they still do) as the basic limits for their ILF development, but very few companies offer CGL limits below $300k.

However, I don't recall W&M discussing this latter case; and you're far more likely to see problems where the basic limit is also the base limit (the one with ILF=1.00) since that's how ISO produces their rate factors.

03-20-2011, 07:46 PM
So basically don't worry about this? ;)

Vorian Atreides
03-20-2011, 07:48 PM
I wouldn't worry over much about it.