Credibility theory based on trimming

Joseph H.T. Kim and Yongho Jeon

Insurance: Mathematics and Economics, 2013, vol. 53, issue 1, 36-47

Abstract: The classical credibility theory proposed by Bühlmann has been widely used in general insurance applications. In this paper we propose a credibility theory via truncation of the loss data, or the trimmed mean. The proposed framework contains the classical credibility theory as a special case and is based on the idea of varying the trimming threshold level to investigate the sensitivity of the credibility premium. After showing that the trimmed mean is not a coherent risk measure, we investigate some related asymptotic properties of the structural parameters in credibility. Later a numerical illustration shows that the proposed credibility models can successfully capture the tail risk of the underlying loss model, thus providing a better landscape of the overall risk that insurers assume.

Keywords: Credibility; Trimmed mean; L-estimator; Risk measure (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:53:y:2013:i:1:p:36-47

DOI: 10.1016/j.insmatheco.2013.03.012

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