Bailey and Simon

Question 1

Experience Mod

Answer 1

Question 2

Premium adjustements for relative frequency calculation

Answer 2

Question 3

Maldistribution

Answer 3

Exposure correlation (i.e. between territory and merit)

Question 4

Choosing premium base for frequency

Answer 4

Question 5

Mod formula

Answer 5

Question 6

Bailey and Simon assumptions for calculating R

Answer 6

1. Class total claim frequency to ECY is the same each year
2. Claim counts are Poisson distributed

Question 7

R formula

Answer 7

Question 8

Experience rating credibility dependencies

Answer 8

Volume of data

Variance of loss experience within a class (Experience rating distinguishes the individual risk from the class average risk)

Question 9

2-year, 3-year credibilities relative to 1-year

Answer 9

The closer the 2- and 3- year relativities are to 2.0 and 3.0, respectively, the more stable the book:

1) Risks entering/exiting portfolio
2) Risk characteristics changing over time

Question 10

3 conclusions of Bailey and Simon paper

Answer 10

Question 11

Buhlmann credibility formula

Answer 11

Question 12

Hazam conclusions

Answer 12

1. Credibility increases in proportion to years only for low credibility values
2. Simple Buhlmann credibility shows that double or triple the data doesn’t result in exactly double or triple credibility (since k does not change for different samples of n sizes taken from the X variable)

Z = n / (n + k)

Question 13

K, Buhlmann credibility

Answer 13

K = EVPV / VHM

= E[Var(X¦µ)] / Var(E[X¦µ])

Question 14

Why individual risk experience is more credible when there is m ore variance in loss experience

Answer 14

Experience rating distinguishes the individual risk from the class average risk