Actuarial technique that caps large losses at a threshold to isolate their impact when analyzing attritional loss experience.
Capping involves truncating each claim at a predefined threshold during loss experience analysis. Claims exceeding the cap are handled separately: the portion above the cap is modeled using extreme value theory methods or specific tail distributions. This technique is essential to separate attritional experience (frequent, moderate amounts) from large-loss experience (rare, high amounts), which follow very different statistical distributions and must be priced separately. Capping directly affects the severity and pure premium calculated; always state the cap used when communicating loss metrics.
On a liability book, a 500,000 EUR cap is applied. Three claims above the cap (900K, 1.2M, 2.1M EUR) are handled separately. Attritional severity on capped losses is 18,000 EUR vs 47,000 EUR uncapped.
capping, plafonnement des sinistres, large loss cap, écrêtage, truncation