Credibility Methods for Individual Life Insurance
Credibility theory is used widely in group health and casualty insurance. However, it is generally not used in individual life and annuity business. With the introduction of principle-based reserving (PBR), which relies more heavily on company-specific experience, credibility theory is becoming incr...
| Main Authors: | , , , , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2018-12-01
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| Series: | Risks |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2227-9091/6/4/144 |
| _version_ | 1819019729477566464 |
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| author | Yikai (Maxwell) Gong Zhuangdi Li Maria Milazzo Kristen Moore Matthew Provencher |
| author_facet | Yikai (Maxwell) Gong Zhuangdi Li Maria Milazzo Kristen Moore Matthew Provencher |
| author_sort | Yikai (Maxwell) Gong |
| collection | DOAJ |
| description | Credibility theory is used widely in group health and casualty insurance. However, it is generally not used in individual life and annuity business. With the introduction of principle-based reserving (PBR), which relies more heavily on company-specific experience, credibility theory is becoming increasingly important for life actuaries. In this paper, we review the two most commonly used credibility methods: limited fluctuation and greatest accuracy (Bühlmann) credibility. We apply the limited fluctuation method to M Financial Group’s experience data and describe some general qualitative observations. In addition, we use simulation to generate a universe of data and compute Limited Fluctuation and greatest accuracy credibility factors for actual-to-expected (A/E) mortality ratios. We also compare the two credibility factors to an intuitive benchmark credibility measure. We see that for our simulated data set, the limited fluctuation factors are significantly lower than the greatest accuracy factors, particularly for low numbers of claims. Thus, the limited fluctuation method may understate the credibility for companies with favorable mortality experience. The greatest accuracy method has a stronger mathematical foundation, but it generally cannot be applied in practice because of data constraints. The National Association of Insurance Commissioners (NAIC) recognizes and is addressing the need for life insurance experience data in support of PBR—this is an area of current work. |
| first_indexed | 2024-12-21T03:39:57Z |
| format | Article |
| id | doaj.art-f63ba610edde4649a342659809a74f90 |
| institution | Directory Open Access Journal |
| issn | 2227-9091 |
| language | English |
| last_indexed | 2024-12-21T03:39:57Z |
| publishDate | 2018-12-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Risks |
| spelling | doaj.art-f63ba610edde4649a342659809a74f902022-12-21T19:17:14ZengMDPI AGRisks2227-90912018-12-016414410.3390/risks6040144risks6040144Credibility Methods for Individual Life InsuranceYikai (Maxwell) Gong0Zhuangdi Li1Maria Milazzo2Kristen Moore3Matthew Provencher4BlueCrest Capital, New York, NY 10022, USAPayPal, Inc., San Jose, CA 95131, USAUnum, Chattanooga, TN 37402, USADepartment of Mathematics, University of Michigan, Ann Arbor, MI 48109-1043, USAMutual of Omaha Insurance Co., Omaha, NE 68175-1004, USACredibility theory is used widely in group health and casualty insurance. However, it is generally not used in individual life and annuity business. With the introduction of principle-based reserving (PBR), which relies more heavily on company-specific experience, credibility theory is becoming increasingly important for life actuaries. In this paper, we review the two most commonly used credibility methods: limited fluctuation and greatest accuracy (Bühlmann) credibility. We apply the limited fluctuation method to M Financial Group’s experience data and describe some general qualitative observations. In addition, we use simulation to generate a universe of data and compute Limited Fluctuation and greatest accuracy credibility factors for actual-to-expected (A/E) mortality ratios. We also compare the two credibility factors to an intuitive benchmark credibility measure. We see that for our simulated data set, the limited fluctuation factors are significantly lower than the greatest accuracy factors, particularly for low numbers of claims. Thus, the limited fluctuation method may understate the credibility for companies with favorable mortality experience. The greatest accuracy method has a stronger mathematical foundation, but it generally cannot be applied in practice because of data constraints. The National Association of Insurance Commissioners (NAIC) recognizes and is addressing the need for life insurance experience data in support of PBR—this is an area of current work.https://www.mdpi.com/2227-9091/6/4/144credibilityprinciple-based reservingsimulation |
| spellingShingle | Yikai (Maxwell) Gong Zhuangdi Li Maria Milazzo Kristen Moore Matthew Provencher Credibility Methods for Individual Life Insurance Risks credibility principle-based reserving simulation |
| title | Credibility Methods for Individual Life Insurance |
| title_full | Credibility Methods for Individual Life Insurance |
| title_fullStr | Credibility Methods for Individual Life Insurance |
| title_full_unstemmed | Credibility Methods for Individual Life Insurance |
| title_short | Credibility Methods for Individual Life Insurance |
| title_sort | credibility methods for individual life insurance |
| topic | credibility principle-based reserving simulation |
| url | https://www.mdpi.com/2227-9091/6/4/144 |
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