Statistical Models and Credibility

The theory of credibility is a cornerstone of actuarial science. Actuaries commonly use it, and with some pride regard it as their own invention, something which surpasses statistical theory and sets actuaries apart from statisticians. Nevertheless, the development of statistical models by statisticians and econometricians in the latter half of this century is very relevant to credibility theory; it can ground as well as generalize much of the theory, particularly the branch thereof known as least-squares credibility. It is the purpose of this paper to show how the theory and practice of credibility can benefit from statistical modeling.