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Credibility Models with Time-Varying Trend Components

  • Johannes Ledolter (a1), Stuart Klugman (a2) and Chang-Soo Lee (a3)

Abstract

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.

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References

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Credibility Models with Time-Varying Trend Components

  • Johannes Ledolter (a1), Stuart Klugman (a2) and Chang-Soo Lee (a3)

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