Shengwang Meng, Zhanhang Xiao

【Abstract】

Credibility models are main methods of experience ratemaking for non-life insurance. Classical Buhlmann-Straub credibility model can be expressed as a random intercept model. Random intercept model assumes that the random effect is normally distributed. In insurance reality, some individual risks may cause much higher losses than the population average. In this case, random effect is right-skewed and Buhlmann-Straub model may under-estimate the credibility premium with higher risks. The paper assumes that the random effect is skew-normally distributed in random intercept model, and a new credibility premium may be calculated. It can be shown that Buhlmann-Straub model is included in this new model as a special ease. Simulation study and case study show that the new credibility model improves the credibility premium of higher risks.

【Keywords】

random effect model, credibility premium, skew-normal distribution, non-life insurance