COURSE TITLE

COMPUTER CODE
PRE-REQUISITE
CREDIT HOURS
INSTRUCTORS

: Credibility Theory
: AS306
: AS104 Applied probability
:3
: Mr Halim Shukri Kamarudin (Lecturer and Tutor)
halimshukri@ucsi.edu.my

Description
This unit will begin with the revision of mathematical statistics. A situation occurs when there
are one or more estimates based on a small number of observations. Accuracy could be improved
by adding other related observations. The credibility methods that will be covered in this unit
such as limited fluctuation credibility theory, greatest accuracy theory and empirical Bayes
parameter estimation, provide the mechanism for making the appropriate adjustment when
additional data are to be included.
Objectives
The aim of this unit is to study the credibility approach to experience rating.
Learning Outcomes
On completion of this course, students will be able to:
Model the loss frequencies and magnitude from the prospective of financial service
operation
Apply limited fluctuation (classical) credibility including criteria for both full and partial
credibility
Perform Bayesian analysis using both discrete and continuous models
Apply Bhlmann and Bhlmann-Straub models and explain the relationship of these to
the Bayesian model
Apply conjugate priors in Bayesian analysis and in particular the Poisson-gamma model
Apply empirical Bayesian methods in the nonparametric and semi-parametric cases
Course Outline
Introduction to the Related Statistical Concepts
Conditional Distributions and Expectation
Mixed Distributions and Maximum
Likelihood Estimation
Limited Fluctuation Credibility Theory
Full and Partial Credibility for Poisson Frequency
Full and Partial Credibility for Non Poisson Frequency

Greatest Accuracy Theory

The Bayesian Approach and the Bayesian Premium
The Credibility Premium
The Buhlmann and Buhlmann-Straub Models
Exact Credibility
Empirical Bayes Parameter Estimation
Nonparametric and Semiparametric
Estimation
Textbooks
Main Reference
Klugman, S. A., Panjer, H. H., & Willmot, G. E. (2008). Loss Models: From Data to
Decisions. (3rd ed.). Hoboken, N.J.: Wiley-Interscience.
Additional References
Bowers, N. L., Gerber, H. U., Hickman, J. C., Nesbitt, C. J., & Nesbitt, D. (1997)
Actuarial Mathematics. (2nd ed.). Schaumburg, IL: Society of Actuaries.
Casualty Actuarial Society. (2001). Foundations of Casualty Actuarial Science. (4th ed.).
Arlington VA: CAS Publications.
Herzog, T. N. (1999). Introduction to Credibility Theory. (3rd ed.). Winsted, CT: Actex
Publication.
Timetable
Lectures:

Wednesday; 5:00-6:30pm (C204)

(COMPULSARY)
Tutorials:
Thursday; 5:00-6:30pm (C406)
(COMPULSARY)
Consultation: Mr. Halim:
Monday; 3:30-5:30pm
Tuesday; 2:00-4:00pm
Assessment
All components of assessment listed below ought to be completed for a student to obtain a
passing grade in the course. There will be no re-weighting of components within the
course.
Test 1
Test 2
Final Examination
Total

20%
20%
60%
100%