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1 results

  • Optimal design of a bonus-malus system: linear relativities revisited

  • Chong It Tan
  • Journal:
    Annals of Actuarial Science / Volume 10 / Issue 1 / March 2016
    Published online by Cambridge University Press:
    20 October 2015, pp. 52-64

  • In this paper, we revisit the determination of optimal relativities under the linear form of relativities that is more viable in designing a commercial bonus-malus system. We derive the analytical formulae for the optimal linear relativities subject to a financial balanced inequality constraint. We also numerically investigate the impact of different a priori risk classification towards the effectiveness of transition rules. Our results show that the a priori risk segmentation is not a sensitive factor for the effectiveness of transition rules. Furthermore, relative to the general relativities, we find that the restriction of linear relativities only produces a small amount of deterioration towards the numerical value of the optimised objective function.