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ACTUARIAL STANDARD
OF PRACTICE
NO. 13
TRENDING PROCEDURES IN
PROPERTY/CASUALTY
INSURANCE RATEMAKING
Developed by the
Subcommittee on Ratemaking of the
Casualty Committee of the
Actuarial Standards Board
Adopted by the
Actuarial Standards Board
July 1990
(Doc. No. 021)
TABLE OF CONTENTS
Transmittal Memorandum iii
PREAMBLE
Section 1. Purpose, Scope, and Effective Date 1
1.1 Purpose 1
1.2 Scope 1
1.3 Effective Date 1
Section 2. Definitions 1
2.1 Experience Period 1
2.2 Forecast Period 1
2.3 Social Inflation 1
2.4 Trending Period 1
2.5 Trending Procedure 1
Section 3. Background and Historical Issues 2
3.1 Inflation 2
3.2 Alternative Procedures 2
Section 4. Current Practices and Alternatives 2
4.1 Historical Insurance Data 2
4.2 Models 2
4.3 Actuarial Judgment 2
Section 5. Analysis of Issues and Recommended Practices 3
5.1 Estimating Future Costs 3
5.2 Selection of Models 3
5.3 Purpose of Trending Procedures 3
5.4 Analysis of Historical Insurance Data 3
5.5 Analysis of Non-Insurance Data 3
5.6 Economic and Social Influences 3
5.7 Criteria for Determining Trending Period 4
5.8 Informed Actuarial Judgment 4
Section 6. Communications and Disclosures 4
6.1 Documentation and Disclosure Standard 4
6.2 Trend Selection 4
6.3 Deviation from Standard 4
ii
July 1990
TO: Members of the American Academy of Actuaries and Other Persons Interested in
Property/Casualty Insurance Ratemaking Trending Procedures
FROM: Actuarial Standards Board (ASB)
SUBJ: Actuarial Standard of Practice No. 13
Enclosed is the final version of Actuarial Standard of Practice (ASOP) No. 13, Trending
Procedures in Property/Casualty Insurance Ratemaking. The purpose of the standard is to set
forth generally accepted actuarial practices for estimating future expected values in ratemaking,
based on analysis of historical data and other relevant information.
The standard was developed by the Subcommittee on Ratemaking of the Casualty Committee of
the ASB. It was exposed for comment in July 1989. Twenty-two written responses to the
exposure draft were received.
The Subcommittee on Ratemaking reviewed all the suggestions and concerns expressed by both
members and nonmembers of the American Academy of Actuaries regarding the draft. As a
result, several changes were made to the draft by the subcommittee. Specifically, some
significant modifications were as follows:
1. The purpose of trending procedures was redefined in section 1.1 to emphasize the need to
estimate future expected values by analyzing historical data and other relevant
information. Also, the phrase future cost levels, which had caused some concern, was
deleted.
2. The scope of the standard was broadened by eliminating the reference to cost elements.
In addition, the scope was rewritten to make the standard explicitly applicable to all
property and casualty lines of insurance.
3. Several concerns were expressed about the context in which the terms internal data and
external data were being used. There appeared to be a potential for confusion, for
example, as to whether external data encompassed data external to an insurance company
or to the entire insurance industry. In the final version, the terms internal and external
data have been replaced by the terms insurance and non-insurance data, respectively.
4. Various respondents felt that the draft's reference to regression and econometric analysis
unduly restricted the actuary's use of modeling in trending procedures. Accordingly,
specific references to regression and econometric analysis were omitted and a more
general discussion of the selection of models was substituted.
5. It was suggested that the standard be more specific with regard to the manner in which
the actuary should evaluate potential selected models, retrospectively and prospectively.
iii
Pdf INFO
Title: ASOP No. 13, Trending Procedures in Property/Casualty Insurance Ratemaking
Subject: ASOP No. 13, Trending Procedures in Property/Casualty Insurance Ratemaking
Author: Actuarial Standards Board
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