IAI Actuarial Core Principles · Actuarial Statistics · Credibility theory: Bayesian and empirical Bayes credibility premiums
A Bühlmann-Straub model has K = 40. A policyholder group had total exposure of 160 over several years, with exposure-weighted average claim per unit exposure of Rs 500. The collective premium is Rs 350. What is the credibility premium per unit exposure?
The credibility premium is Rs 470. Z = 160/200 = 0.8, so premium = 0.8×500 + 0.2×350 = 470 per unit exposure.
- ARs 470Correct
- BRs 440
- CRs 410
- DRs 380
- Rs 500
Explanation
Z = 160/(160+40) = 0.8. Premium = 0.8×500 + 0.2×350 = 400 + 70 = 470. Rs 440 would result from reversing the weights incorrectly (0.6/0.4 style error).
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