The question is: Write down key consideration when selecting the appropriate ILFs table? ----- The IFOA answer include 2 big bullets (1 point per bullet) Risk groupings should be selected so that within each group: the (ground-up) loss frequency is independent of the limit purchased [1] the (ground-up) loss severity is independent of the number of losses and the limit purchased [1] ----- How come the loss frequency and loss severity related to considering ILFs table? I thought that ILF table is created by loss cost per exposure only, as steps: - Collect the data from the loss (experience or market) - Build a table with 2 columns: Sum insured limit, Loss cost at each sum insured limit What am I missing here?
It sounds to me like you are confusing ILFs and Exposure Curves. ILFs are described in Section 3 of Chapter 15, so perhaps have another read of that. You will find the above assumptions in the Core Reading there. ILFs are used in rating casualty business, where there is no easily definable upper limit on the possible severity of loss to the original insured (ie sum insured), so we don't work with the relative loss distribution like we do for exposure curves.
