Decide how to partition data so each group stays homogeneous without sacrificing credibility, and explain the trade-offs behind the partition.
Free CAS Exam 5 (Basic Ratemaking and Reserving) lesson in Ratemaking. 21 min read, ~3,202 words.
Homogeneity means risks in a group share similar expected loss; credibility means the group has enough volume for a stable estimate. The two pull in opposite directions: finer partitions raise homogeneity but shrink each cell's data and cut credibility. Full credibility standard for frequency is often 1,082 claims (5% error...
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- A5
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