Large loss development and excess loss development are relevant in determining excess loss factors used in NCCI’s ratemaking methodology and in retrospective rating. In this research brief, NCCI presents the results of an update to the periodic review of these development patterns.
This brief is an update to the prior NCCI studies, completed in 2007, 2011, and 2016. An additional four calendar years of large loss experience are added to the most recent study.
In this update of the analysis, we explore development patterns by size of loss using enhanced visualization techniques and review claim closure rates for different sizes of loss across a broad array of accident years and maturities. Additionally, we include tables of cumulative excess loss and excess claim count development factors through development year 35 for a variety of excess layers.
Please note, in the context of this paper, “smaller losses” is a relative term as it refers to claim amounts reported on NCCI’s Large Loss Call 31, where the case-incurred value of every claim is at least $500,000.
KEY FINDINGS
For large claims reported to NCCI in Financial Call 31 (Large Loss and Catastrophe Call) during the time period studied and development through 35 years:
- The development of case-incurred loss amounts, paid loss amounts, and claim counts varies significantly by loss size and development year
- Claim counts for larger losses are identified quickly and reported faster than those for smaller losses
- Claims with case-incurred losses less than $5 million generally developed upward, while claims with case-incurred losses in excess of $7 million generally developed downward
- Claims with case-incurred losses between $5 million and $7 million generally developed downward during earlier reporting periods and upward during later reporting periods
- On average, the loss cohorts (groups of similarly sized claim amounts) observed in this analysis experience upward development in later development periods
- Smaller claims tend to close faster than larger claims
- For Florida, claims under large deductible policies had significantly more development in the excess layers than claims under other policies (i.e., guarantee cost and small deductible)
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