1. 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) Di fferent potential loss events might be used to look at the variation of the total loss
  2. Characteristics of PEBLEs
    • 1. Defi nition: 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. O ffers alternative to traditional actuarial analysis
  3. 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"
  4. Diagram of Expanded Form of PEBLE
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  5. Issues Inherent With PEBLEs
    • 1. External Processes and Data
    • 2. "Black Box"
    • 3. Validation and Usability
    • 4. Quality Assurance
    • 5. Parameterization
    • 6. Cost/Bene fit
    • 7. Updates
  6. 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
  7. 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
  8. 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
  9. 3 Cases Where Updates to PEBLE are Required
    • 1. Signi ficant change in the exposed business
    • 2. Signi ficant change in the loss process or an important parameter
    • 3. Availability of signi ficant new data
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