Sequential Testing for Full Credibility

By Michael Baron, Rui (Ryan) Xu

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This paper introduces sequential statistical methods in actuarial science. As an example of sequential decision making that is based on the data accrued in real time, it focuses on sequential testing for full credibility. Classical statistical tools are used to determine the stopping time and the terminal decision that controls the overall error rate and power of the procedure. As a result, a set of conditions is obtained under which an insured cohort becomes fully credible.

Keywords: Credibility, frequency-severity model, likelihood ratio, sequential test, stopping boundary, asymptotic normality


Baron, Michael, and Rui (Ryan) Xu, "Sequential Testing for Full Credibility," Variance 10:2, 2016, pp. 227-239.

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Variance (ISSN 1940-6452) is a peer-reviewed journal published by the Casualty Actuarial Society to disseminate work of interest to casualty actuaries worldwide. The focus of Variance is original practical and theoretical research in casualty actuarial science. Significant survey or similar articles are also considered for publication. Membership in the Casualty Actuarial Society is not a prerequisite for submitting papers to the journal and submissions by non-CAS members is encouraged.