Loss Models, 5th Edition

17Greatest Accuracy Credibility

17.1 Introduction

In this and Chapter 18, we consider a model-based approach to the solution of the credibility problem. This approach, referred to as greatest accuracy credibility theory, is the outgrowth of a classic 1967 paper by Bühlmann [19]. Many of the ideas are also found in Whitney [131] and Bailey [9].

We return to the basic problem. For a particular policyholder, we have observed n exposure units of past claims . We have a manual rate (we no longer use M for the manual rate) applicable to this policyholder, but the past experience indicates that it may not be appropriate (, as well as , could be quite different from ). This difference raises the question of whether next year's net premium (per exposure unit) should be based on , on , or on a combination ...