Common use of Modifiers Clause in Contracts

Modifiers. Rating modifiers are used to adjust rates in order to reflect individual risk characteristics of insureds. Modifiers are used adjust rates for a wide variety of risk and exposure characteristics. Some examples include: geographic location, class code, hazard grades, NAICS category, GICS sub-industry, business class, corporate governance characteristics, financial measures (including assessment of balance sheet, income statement, cash flow, and bankruptcy likelihood measures), years in business, number of records, asset class, regulatory exposure, claim and litigation experience. The intent is to capture any characteristic that is expected to have an impact on loss potential and charge more or less premium depending on that expectation. Increased Limit Factors (ILFs): ILFs are used to adjust premium to account for writing higher limits. When writing excess layers, layer factors are determined by the ILFs. Layer factor = ILF (Limit + Attachment) – ILF (Attachment). Where there is sufficient credible claims data, an ILF can be calculated as ILF (Limit) = average of all claims that have been capped by the Limit. Sources of ILFs include published rate filings and claims studies, market data, and underwriter experience. ▇▇▇▇▇▇▇ also collects claims data which has and will continue to be used to do ILF studies. Loss Rating: Loss rating is done whenever an account has sufficient credible loss data. For example, loss rate undertaken for all accounts for Hospitals and Public Entity. There are also some larger accounts in Senior Care, Miscellaneous Medical Facilities, Excess Casualty, and Primary Casualty where actuarial loss rating is undertaken. This involves comparing historical losses (that are adjusted by trend to be representative of losses that would occur during the period of risk) with historical exposures which have also been brought to prospective level. A loss pick is a ratio of expected losses to exposures; this is applied to the prospective exposures. There are several techniques used to loss rate. These include loss rating the covered layer, loss rating a lower (more credible) layer and using ILFs to price a higher layer, frequency/severity modeling (which requires fitting a loss distribution to historical claims data), and aggregate simulation techniques. 1 Introduction & Overview

Modifiers. Rating modifiers are used to adjust rates in order to reflect individual risk characteristics of insureds. Modifiers are used adjust rates for a wide variety of risk and exposure characteristics. Some examples include: geographic location, class code, hazard grades, NAICS category, GICS sub-industry, business class, corporate governance characteristics, financial measures (including assessment of balance sheet, income statement, cash flow, and bankruptcy likelihood measures), years in business, number of records, asset class, regulatory exposure, claim and litigation experience. The intent is to capture any characteristic that is expected to have an impact on loss potential and charge more or less premium depending on that expectation. Increased Limit Factors (ILFs): ILFs are used to adjust premium to account for writing higher limits. When writing excess layers, layer factors are determined by the ILFs. Layer factor = ILF (Limit + Attachment) – ILF (Attachment). Where there is sufficient credible claims data, an ILF can be calculated as ILF (Limit) = average of all claims that have been capped by the Limit. Sources of ILFs include published rate filings and claims studies, market data, and underwriter experience. ▇▇▇▇▇▇▇ also collects claims data which has and will continue to be used to do ILF studies. Loss Rating: Loss rating is done whenever an account has sufficient credible loss data. For example, loss rate undertaken for all accounts for Hospitals and Public Entity. There are also some larger accounts in Senior Care, Miscellaneous Medical Facilities, Excess Casualty, and Primary Casualty where actuarial loss rating is undertaken. This involves comparing historical losses (that are adjusted by trend to be representative of losses that would occur during the period of risk) with historical exposures which have also been brought to prospective level. A loss pick is a ratio of expected losses to exposures; this is applied to the prospective exposures. There are several techniques used to loss rate. These include loss rating the covered layer, loss rating a lower (more credible) layer and using ILFs to price a higher layer, frequency/severity modeling (which requires fitting a loss distribution to historical claims data), and aggregate simulation techniques. 1 Introduction & Overview.