Aggregate Stop-Loss (Medical)

[Dave V]

I have been asked to revise my companies Aggregate Stop-Loss formula and factors which have not been looked at since the 80s. Unfortunately, there is no documentation, programs or past work for me to use as a reference.

Does anyone know of a text book, paper or website which describes the methodology behind this process?

For clarification: we use Aggregate Stop-Loss to refer to group stop-loss coverage which kicks in once a loss ratio of X% is exceeded.

[Toll Free]

I'd start with your company's own experience. If your rates are expressed as a % of premium somehow, the main assumption becomes the change in the variance of claims over time. I would look at two items:

1) Actual/Expected results on this product over the past few (10?) years. Have you made money? If not, time to increase rates!

2) Your firm's actual distribution of claims for the underlying products over the last 2-3 years. Trend them, and run some monte carlo simulations to get theoretical rates. Fun stuff.