A3. Bailey and Simon

Question 1

e-mod formula

Answer 1

ZxR + (1-Z)

Question 2

Z formula

Answer 2

(mod-1)/(R-1)

Question 3

When should we use premium as exposure base

Answer 3

1. high frequency ( to car years) territories are also high average premium territories
2. Territorial rate differentials are proper (equal LR across)

Question 4

3 conclusions from Bailey and Simon

Answer 4

1. The experience of a single car for one year has significant and measurable credibility for experience rating.
2. Individual risk experience is more credible when there is more variance in the loss experience within a risk class, which occurs in less refined risk classification.
3. The credibility for varying years of experience should increase in proportion to the number of years of experience. (this is only true if 1, risks are not entering or exiting the book. 2, risk characteristics are not changing over time)