PEBELS: Policy Exposure Based Excess Loss Smoothing

PEBELS is a method for estimating the expected loss cost for each loss layer of an individual property risk regardless of size. By providing maximum resolution in estimating layer loss costs, PEBELS facilitates increased accuracy and sophistication in many actuarial pricing applications such as ratemaking, predictive modeling, catastrophe modeling, and reinsurance pricing. The existing actuarial literature provides methods for estimating high layer loss cost for credible property portfolios in aggregate, but does not provide a method to produce similar provisions for smaller non-credible risks. PEBELS generalizes existing reinsurance pricing theory, and leverages increasingly available exposure data to fill that void.