Calculate and interpret loss elimination ratios, increased limits factors, and deductible factors.

Free SOA Exam ASTAM (Advanced Short-Term Actuarial Mathematics) lesson in Coverage Modifications. 13 min read, ~1,980 words.

LER(d) = E[X ∧ d] / E[X]: fraction of pure premium eliminated by an ordinary deductible; always in [0, 1]. Deductible factor = 1 − LER(d): fraction of premium retained after applying deductible. ILF(U) = E[X ∧ U] / E[X ∧ B]: multiplier on base-limit premium, with ILF(B) = 1...