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Credibility Models with Time-Varying Trend Components

Published online by Cambridge University Press:  29 August 2014

Johannes Ledolter ,
Stuart Klugman  and
Chang-Soo Lee
Johannes Ledolter
Affiliation:
Department of Statistics and Actuarial Science, Department of Management Sciences, The University of Iowa, Iowa City, IA 52242
Stuart Klugman
Affiliation:
College of Business and Public Administration, Drake University. Des Moines, IA 50311
Chang-Soo Lee
Affiliation:
Department of Statistics and Actuarial Science, The University of Iowa, Iowa City, IA 52242
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Abstract

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Traditional credibility models have treated the process generating the losses as stable over time, perhaps with a deterministic trend imposed. However, there is ample evidence that these processes are not stable over time. What is required is a method that allows for time-varying parameters in the process, yet still provides the shrinkage needed for sound ratemaking. In this paper we use an automobile insurance example to illustrate how this can be accomplished.

Keywords

CredibilityKalman filtershrinkage estimationtime seriestrend components.
Type
Workshop
Information
ASTIN Bulletin: The Journal of the IAA , Volume 21 , Issue 1 , April 1991 , pp. 73 - 91
Copyright
Copyright © International Actuarial Association 1991

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