Credibility Models with Time-Varying Trend Components

Johannes Ledolter, Stuart Klugman and Chang-Soo Lee

ASTIN Bulletin, 1991, vol. 21, issue 1, 73-91

Abstract: Traditional credibility models have treated the process generating the losses as stable over time, perhaps with a deterministic trend imposed. However, there is ample evidence that these processes are not stable over time. What is required is a method that allows for time-varying parameters in the process, yet still provides the shrinkage needed for sound ratemaking. In this paper we use an automobile insurance example to illustrate how this can be accomplished.

Date: 1991
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