[[Actuarial Notes Wiki|Wiki]] / [[Exam 5 (CAS)]] / **Low Frequency Insurance** ## Definition ==Low Frequency Insurance== refers to lines of business characterized by few claims per exposure unit, though individual claim sizes can be very large. ## Characteristics - Few claims occur - Higher average severity - More volatility - Large losses dominate results ## Typical Lines - Professional liability - Products liability - Umbrella/excess liability - Surety bonds - Aviation insurance ## Implications ### Ratemaking - Severity trends critical - Large loss treatment essential - More volatile loss ratios - Credibility harder to achieve - May need industry data ### Reserving - Individual large claims dominate - Case reserve quality critical - High variability in outcomes - Tail uncertainty greater ## Example ``` Directors & Officers Liability: 1,000 exposures 2 claims per year (0.2% frequency) Average severity: $500,000 But one claim could be $5,000,000 ``` ## Related Concepts - [[High Frequency Insurance#Definition]] - [[Large Loss#Definition]] - [[Severity Analysis#Definition]] ## References - Friedland, Chapter 1