Credibility Adjusted Experience

Actuaries occasionally encounter inconsistencies in mortality experience that cannot be explained by typical causes of fluctuation (i.e., underwriting, market conditions, intrinsic randomness). For example, the actual-to-expected (A/E) ratio for a particular issue year may be unusually high or low compared to those in surrounding years. In this case, the actuary may wish to lessen the effect of that subgroup while not completely ignoring its impact on overall experience. This article describes a technique that uses credibility theory to achieve this result.

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