Applying Credibility Concepts to Develop Weights for Ultimate Claim Estimators

In estimating ultimate claim and claim expense amounts, actuaries often rely on estimates developed using multiple actuarial methods. Combining these estimates is often left to the actuary's professional judgment. That judgment generally re ects informed but subjective opinion on the relative stability and responsiveness of various methods and the reasonableness of the results of those methods.

This paper proposes a more quantitative approach. The approach is based on credibility concepts which are often used in ratemaking contexts but have yet to find their way into this particular aspect of estimating unpaid claims and claim expenses. As with the ratemaking context, credibility is based on the variance of estimators. However the application to unpaid claim estimates requires a different approach. That approach is the subject of this paper.

Keywords: Credibility, Reserving