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Canadian merit rating
- A: 3 or more years since acc/license
- X: 2 or more years since acc/license
- Y: 1 year since acc/license
- B: 0 yrs since acc/license
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Bailey & Simon - Normalizing frequency
- freq is measured relative to thousands of dollars of EP
- (+) avoids maldistribution created by having higher freq territories producing more X, Y, B risks w higher premium
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Merit modification
- Mod = ZR + (1 - Z)
- Z = (1 - M) / (1 - R)
- Z = credibility, R = ratio of actual/exp loss
- R ~ Poisson = 1 / (1 - e-μ)
- Credibility incr at decr rate as # yrs incr
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Bailey & Simon statements
- (1) Z should vary approximately in proportion to the avg clm freq of the class, except for narrowly defined classes
- (2) within any class Z assigned to accident free experience should vary approximately in proportion to the # of yrs clm free
- if follow poisson (1) and (2) are equivalent
- if (2) doesn't hold a) risks are entering and leaving b) true chance of loss varies within a yr or from 1 yr to next
- failure comes from diff spread of risk (1) across classes (2) over time
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