

FlashChat  Actuarial Discussion  Preliminary Exams  CAS/SOA Exams  Cyberchat  Around the World  Suggestions 

General Actuarial NonSpecific Actuarial Topics  Before posting a thread, please browse over our other sections to see if there is a better fit, such as Careers  Employment, Actuarial Science Universities Forum or any of our other 100+ forums. 

Thread Tools  Search this Thread  Display Modes 
#11




Sorry, was asking about a case where your full credibility standard is 1,082 claims, you expect 500, but observe 1,500. Is the credibility there 100% or sqrt(500/1082) = 68%?
At any rate, I do get the impression that there is a subtle difference between how LFC is generally applied in a mortality or a P&C context, and likely one that makes sense given the circumstances. Looking at the SOA's credibility practice notes from 2009 (https://www.soa.org/Files/Research/P...eorypract.pdf ), actual deaths/lapses are used in the simplified LFC formula on page I.6. That follows from an assumption that the deaths/lapses are Poisson distributed. However, there is an underlying assumption there that the true actualtoexpected ratio is that observed, instead of assuming it is just 100%. 
#13




Quote:
Quote:
You expected your full credibility standard is 1082, and you expected 0.001 deaths (your risk set was 1 life for one year with q=0.001). Oops! He dies. So your unweighted estimate for q is q=1.0 (I agree with this.) Your credibility should be sqrt(0.001/1082) which is about 0.001. Using actual, we'd get sqrt(1/1082) which is about 0.03. The credibility weighted estimate is 1(0.001) + 0.001(0.999) = 0.00196 Your estimate would be 1(0.03) + 0.001(0.97) = 0.03137 ============= Also, from a regulator's point of view, your method fails to give the insured credit for good experience and doubly punishes bad experience. That is unfairly discriminatory.
__________________
"What do you mean I don't have the prerequisites for this class? I've failed it twice before!" "I think that probably clarifies things pretty good by itself." 
#14




Thanks, that helps. Though I do not think I agree with the conclusion from that example itself.
What I was clearly missing, and I am not sure how (guess it has been way too long since I saw anything P&C), is that the the A/E's you are talking about in P&C are loss ratios or whatever, not actual versus expected claims counts. Presumably, the expected # of claims are a better (or at least a fairer and more consistent) indicator of the "stability" of the observed loss ratio than the actual # of claims, and thus the preferred base to use for the credibility standard. But when talking about mortality experience, the A/E's are the actual to expected deaths counts (potentially weighted, but can ignore that here). So, all else equal, more observed deaths really do mean a more stable observed A/E ratio in the LFC sense. If the expected deaths are 1000 but you observe 800, then the probability that the A/E is within a 5% relative tolerance of the estimate of 80% is about 84%, while with 1200 observed deaths that probability (around the 120% estimate) is 92% (if 1,082 deaths were required for full credibility, then the probability of the estimate being within a 5% tolerance would need to be above 90%). If we were focusing directly on the mortality rate, the conclusion would be the same. With the example with 1 death, is the point supposed to be that the estimate of 0.03137 is too high? It probably is, but all sorts of assumptions (certainly Poisson, and even normality) breakdown with so few lives (1 in this case), so I am not sure I see any relevance. Quote:
This was really quite interesting. I never had thought about the practical considerations of credibility in P&C or how it differs from the mortality applications with which I have at least some familiarity. Though I do promise to stay out of P&Crelated threads in the future! 
Thread Tools  Search this Thread 
Display Modes  

