Flashcards in Couret - Multi-Dimentional Credibility Deck (5):
Describe the role of correlation between classes in the multi-dimentional credibility estimation method
1. serious injury types have low frequency
2. serious injury types are correlated. F, PT and Major claims are produces by similar physical circumstances
3. Multi-dimentional credibility uses correlation to improve the estimate of each type's claim frequency
What two tests were conducted to validate the credibility estimates?
1. Individual class SSE
new method showed slight reduction in SSE over using raw average
2. Ranked portfolio of classes SSE (Quintile Testing)
significant improvement in SSE reduction
How does this method differ from historical methods?
Historically the fraction of costs excess of retentions has been calculated for large groups of classes (GHs), not individual classes. C&V show that estimation by class does produce additional information.
What is the purpose of holdout sample.
allows the model to be tested on real data which it hasn't been fitted to.