An Alternative Approach to Credibility for Large Account Pricing

By Uri A. Korn

Download PDF of Full Text


This paper discusses an alternative approach to utilizing and credibility weighting the excess loss information for large account pricing. The typical approach is to analyze the burn costs in each excess layer directly (see Clark 2011, for example). Burn costs are extremely volatile in addition to being highly right skewed, which does not perform well with linear credibility methods, such as Buhlmann-Straub or similar methods (Venter 2003). An alternative approach is shown that uses all of the available data in a more robust and seamless manner where the excess losses themselves are utilized to modify the severity distribution that is used to calculate the increased limit factors. This is done via a simple Bayesian credibility technique that does not require any specialized software to run. Such an approach considers all available information in the same way as analyzing burn costs, but does not suffer from the same pitfalls.

Keywords Buhlmann-Straub credibility, Bayesian credibility, loss rating, exposure rating, burn cost, extreme value theory


Korn, Uri A., "An Alternative Approach to Credibility for Large Account Pricing," Variance 13:1, 2020, pp. 13-30.

Taxonomy Classifications

Subscribe to the RSS Feed

Email List

Sign up today for the Variance e-mail list and receive updates about new issues, articles, and special features.

Mission Statement

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.