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2 Elements of PEBLE
1. Loss event that might give rise to an insurance claim
2. Application of the terms of an individual policy to that loss event to estimate loss
a) Done for all policies exposed to the loss event to estimate loss
b) Different potential loss events might be used to look at the variation of the total loss
Characteristics of PEBLEs
1. Definition
: Interaction of policy terms and exposures with modeling of external loss events to estimate losses
2. Can be used for ratemaking or reserving
a) Is a collective risk model in reserving
b) Is a pure premium approach in ratemaking
3. May be deterministic or stochastic
4. Frequently relies on external, non-insurance data
5. Offers alternative to traditional actuarial analysis
PEBLEs Are Compatible With CAS Principles
1. Reserving:
a) The selection of the most appropriate method of reserve estimation is the responsibility of the actuary
b) A knowledge of the general characteristics of the insurance portfolio including policy provisions is an important consideration of the SOP
2. Ratemaking
a) The SOP states that the actuary is not bound by ratemaking precedents and encourages experimentation and innovation
b) "[External data] may indicate the general direction of trends in insurance"
Diagram of Expanded Form of PEBLE
Issues Inherent With PEBLEs
1. External Processes and Data
2. "Black Box"
3. Validation and Usability
4. Quality Assurance
5. Parameterization
6. Cost/Benefit
7. Updates
5 Advantages of PEBLEs
1. Clarity
: Model is generally intuitive and easily communicated
2. Better understanding of the loss process
3. Documentation of overall changes
4. Scenario testing
5. Understanding variation
2 Reasons for Discomfort With PEBLE Loss Event Module
1. Frequently based on data developed outside the insurance industry
2. PEBLEs tend to deal with types of losses about which there is relatively little information
3 Problems with "Black Box" Approach
1. Does not have "hands on" nature of triangle methods
2. There is a feeling of abstractness and loss of control
3. Actuarial Standards of Practice require sufficient documentation that another actuary can follow
3 Cases Where Updates to PEBLE are Required
1. Significant change in the exposed business
2. Significant change in the loss process or an important parameter
3. Availability of significant new data
Author
Esaie
ID
26152
Card Set
Bouska
Description
Updated
2010-07-09T17:03:25Z
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