Experience and Exposure Rating for Property Per Risk Excess of Loss Reinsurance Revisited

Experience and exposure rating are traditionally considered to be independent but complementary methods for pricing property per risk excess of loss reinsurance. Strengths and limitations of these techniques are well-known. In practice, both methods often lead to quite different prices. In this paper we show that limitations of traditional experience rating can be overcome by taking into account historical profile information by means of exposure curves. For pricing unused or rarely used capacity, we propose to use exposure rating, calibrated on the experience rate of a working layer. We compare the method presented with more traditional methods based on the information which is generally available to the reinsurer.

Keywords: Experience Rating, Exposure Rating, Property per Risk Excess of Loss Reinsurance, Exposure Curves.