ASOP25 Credibility

Question 1

Type of credibility procedures

Answer 1

1. classical credibility
   
   1. 1 makes assumptions about form of the underlying probability distribution
   2. 2 Volume such that the loss is within a given % of expected at a given probability
2. Empirical Credibility
   
   2. 1 measure statistical relationship of subject experience and prior periods
   3. 2 no underlying distribution is assumed
3. Bayesian credibility procedures
   
   3. 1 merge prior distribution with statistical info producing new distributions

Question 2

Considerations when selecting credibility procedures

Answer 2

1. Be familiar with various credibility methods and strengths/weaknesses of each
2. Produce results that are reasonable
3. Do not bias the results in any material way
4. Are practical to implement
5. Consider need to balance responsiveness and stability
6. Prior experience should have characteristics similar to the subject experience
7. Any credibility procedure requires informed judgement