Pricing based on risk exposure and reference curves rather than on a risk's own history, useful for high layers and risks lacking sufficient track record.
Exposure rating is a method that estimates the cost of a risk not from its own claims history, as burning cost does, but from a measure of its exposure and from reference curves describing how losses are distributed by size. It responds precisely to situations where the track record is insufficient to be reliable, either because the risk is new or because one is concerned with high layers that are rarely hit, for which direct experience is too sparse. By relying on exposure curves, which express the share of the exposed value likely to be reached above various thresholds, the actuary can estimate a layer's premium even in the absence of losses observed at that level. This approach is complementary to burning cost, one looking at the past of the risk considered, the other relying on a more general knowledge of the structure of losses, and the two often being combined to cross-check. In cyber reinsurance, where the track record is cruelly lacking on extreme events, exposure rating, fed by scenario models, plays an all the more important role given that burning cost is unreliable there.
To price a high layer never hit in the past, the actuary cannot rely on history. They turn to exposure rating, estimating the probability that losses reach this level from reference curves and modeled scenarios.
tarification à l'exposition, exposure rating, tarification par exposition