A.04.Bailey & Simon

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Author:
Exam8
ID:
160890
Filename:
A.04.Bailey & Simon
Updated:
2012-08-13 21:47:07
Tags:
credibility canadian merit
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Description:
An actuarial note on the credibility of experience of a single private passenger car
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  1. Canadian merit rating
    • A: 3 or more years since acc/license
    • X: 2 or more years since acc/license
    • Y: 1 year since acc/license
    • B: 0 yrs since acc/license
  2. Bailey & Simon - Normalizing frequency
    • freq is measured relative to thousands of dollars of EP
    • (+) avoids maldistribution created by having higher freq territories producing more X, Y, B risks w higher premium
  3. Merit modification
    • Mod = ZR + (1 - Z)
    • Z = (1 - M) / (1 - R)
    • Z = credibility, R = ratio of actual/exp loss
    • R ~ Poisson = 1 / (1 - e)
    • Credibility incr at decr rate as # yrs incr
  4. Bailey & Simon statements
    • (1) Z should vary approximately in proportion to the avg clm freq of the class, except for narrowly defined classes
    • (2) within any class Z assigned to accident free experience should vary approximately in proportion to the # of yrs clm free
    • if follow poisson (1) and (2) are equivalent
    • if (2) doesn't hold a) risks are entering and leaving b) true chance of loss varies within a yr or from 1 yr to next
    • failure comes from diff spread of risk (1) across classes (2) over time

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