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On Fire Exposure Rating and the Impact of the Risk Profile Type

Published online by Cambridge University Press:  09 August 2013

Ulrich Riegel
Ulrich Riegel*
Affiliation:
Swiss Re Europe S.A., Niederlassung Deutschland, 85773 Unterföhring bei München, Germany, E-mail: Ulrich_Riegel@swissre.com
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Abstract

We analyze fire exposure rating for three types of risk profiles: policy profiles, top location profiles and location profiles. Location profiles offer more detailed information than top location profiles, which in turn are better than policy profiles. We prove criteria to ensure that a better quality of risk profile leads to a lower price. These criteria are discussed with respect to standard exposure rating and an alternative method called ‘burning cost-adjusted exposure rating’, where the loss ratio is adjusted by means of the burning cost of a low reference layer. Further, we introduce a family of analytic exposure curves, the so-called EP exposure curves. These curves are useful for practical application, since the criteria given in this paper can be checked easily for exposure curves that can be approximated by EP exposure curves. This is of particular interest for discrete exposure curves. Finally, we apply the results to the MBBEFD exposure curves.

Keywords

Exposure ratingexposure curvefire insurancerisk profilePareto distributionexcess of loss reinsuranceMBBEFD exposure curveEP exposure curve
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 40 , Issue 2 , November 2010 , pp. 727 - 777
Copyright
Copyright © International Actuarial Association 2010

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