Chapter 5: Credibility Theory

6 Nov

This is likely to be a little bit shorter than usual, but  there will be more on this topic.

One of my goals in this blog is to identify cheap or free (most likely online) resources. Although it seems straight forward to find academics who have posted lecture notes covering Financial Mathematics (CT1) or the standard undergraduate probability and statistics covered in CT3, it is pretty hard to find stuff relating to the core of CT6 (as distinct from some of the mainstream statistic topics such as GLMs or Time Series).

Hence for the first bite at Credibility Theory, I want to briefly mention some of the free resources on this topic made available by the American Associations. The material in what is called Learning Outcome H for Exam 4/C for Casualty Actuaries Society can be studied either using the text by Willmot, Panjer and Klugman, which is also suggested reading for the Institute and Faculties CT6, or it can be covered from one of two study notes made available by the Society of Actuaries.

The first is the Credibility Theory chapter from the text called ‘Foundations of Casualty Actuarial Science’ (avaialbe from the CAS) and is available here:

The second is a study note called Topics in Credibility, which is here:

This one is specifically written for people studying Exam 4/C, partly in order to address some gaps in the first reference. However, the first is possibly more in tune with the CT6 notes in the sense that it more explicitly discusses the connection between credibility and Bayesian statistics. Both study notes in come with a number of exercises and answers.

A much briefer look at credibility for those who want to read a concise treatment before jumping into detail is:

I like the way this one discusses, to some extent, when to use the different approaches.


For a more statitiscal look at Credibility, that is not necessarily connected to the exam material, you could look at:

I like this stuff because it hierachical model and geospatial models are what I was doing at uni, but to me it also helps to build a bridge between what statisticians are doing, and what actuaries are doing. Also, it sheds some light on what analyses insurance companies are doing in real life, rather than what people study for the exams. This last is for interest, rather than for exam study, per se.


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