Calculation of Provisions Using Credibility Theory

M. A. Pereira Cabral and J. M. Afonso Garcia

ASTIN Bulletin, 1974, vol. 7, issue 3, 277-292

Abstract: The increasing difficulties facing the insurer when he measures certain risks and fundamentaly when that measurement has to be carried out “a priori” are not easily overcome. Thus, the greater part of the insurance companies still use in numerous branches subjective methods of assessing a risk, which unfortunately do not lead to the best results. Especially in certain risks with undefined characteristics, the problem becomes more accentuated to the point of being practically impossible to class risks whose behaviour would be homogeneous.For example we can analyse the numerous problems of this nature arising in the motor insurance in all countries in assessing the combined risk motor-car and driver.Numerous solutions have been proposed and amongst them a system of premiums adapted to the actual risk and very especially the credibility premiums represent a fundamental step in the evaluation of these types of risks, for they have an advantage of at least as experience increases assuming an authentic measurement “a posteriori” of the true degree of risk which they cover.

Date: 1974
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