Thanks for the reply.
The stochastic approach seems interesting. If I understand correctly, a distribution would be fitted to the severity and then this distribution would be truncated thus changing both the shape and parameters of the distribution.
So, instead of going through each loss and truncating it, the new mean could be assessed by calculating the mean of the truncated distribution with suitable assumptions for the type of distribution.
Another question is that it seems appropriate to split buildings data into SI bands for pricing. This is because the year-on-year average cost per claim would be different depending on the mix of SIs. Is this correct?
Last edited by a moderator: Jan 22, 2008