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Document Details :

Title: Credibility and Persistency
Author(s): YOUNG, V.R.
Journal: ASTIN Bulletin
Volume: 26    Issue: 1   Date: May 1996   
Pages: 53-69
DOI: 10.2143/AST.26.1.563233

Abstract :
Policyholders often decide to buy, renew, or cancel insurance based on the premium charged by the insurer compared with what they expect their claims will be. It is important for actuaries to consider the persistency of policyholders because the financial well-being of the insurer depends on spreading its risk over a large hook of business. We use statistical decision theory to develop premium formulas that account for the past experience of a given policyholder, the experience of the entire collection of policyholders, and the likelihood of the policyholder renewing with or buying from a given insurer, that is, persistency.
We assume that the persistency of policyholders depends on the arithmetic difference between the premium changed and their anticipated claims We extend the work of TAYLOR (1975) in which he obtains linear credibility formulas by minimizing loss functions that incorporate the persistency of policyholders. We consider Taylor's loss functions and other objective functions, including those that account for the amount of business the insurer writes or renews.