A simple Bayesian state-space approach to the collective risk models
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Publication:6098035
DOI10.1080/03461238.2022.2133625zbMATH Open1524.62520arXiv2110.09657MaRDI QIDQ6098035FDOQ6098035
Authors: Jae Youn Ahn, Himchan Jeong, Yang Lu 
Publication date: 9 June 2023
Published in: Scandinavian Actuarial Journal (Search for Journal in Brave)
Abstract: The collective risk model (CRM) for frequency and severity is an important tool for retail insurance ratemaking, macro-level catastrophic risk forecasting, as well as operational risk in banking regulation. This model, which is initially designed for cross-sectional data, has recently been adapted to a longitudinal context to conduct both a priori and a posteriori ratemaking, through the introduction of random effects. However, so far, the random effect(s) is usually assumed static due to computational concerns, leading to predictive premium that omit the seniority of the claims. In this paper, we propose a new CRM model with bivariate dynamic random effect process. The model is based on Bayesian state-space models. It is associated with the simple predictive mean and closed form expression for the likelihood function, while also allowing for the dependence between the frequency and severity components. Real data application to auto insurance is proposed to show the performance of our method.
Full work available at URL: https://arxiv.org/abs/2110.09657
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Bayesian inference (62F15) Actuarial mathematics (91G05) Applications of statistics to actuarial sciences and financial mathematics (62P05) Risk models (general) (91B05)
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