ABSTRACT
The objective of severity analysis is the production of a severity model (Figure 16.1) for the loss amounts. A severity model is not only essential to calculate – in combination with a frequency model – the distribution of aggregate losses but also will help us to reply to questions such as
• What is the probability that an individual loss is going to be as big as £100,000? • What level of deductible is adequate for this risk? • What limit should I purchase for my public liability policy?
