A generalized crossed classification credibility model

Abstract

In the crossed classification credibility (CCC) model of Dannenburg [Crossed classification credibility models. In: Transactions of the 25th International Congress of Actuaries, Vol. 4, 1995, pp. 1–35], every contract in an insurance portfolio is assumed to be affected by the same number of risk factors. One can, however, imagine situations where this may be a restriction to the model. We thus propose a generalization of the original model where the number of risk factors can vary per contract. This is done by introducing a new category for each risk factor representing the fact of not being affected by the risk factor. The main effect on formulae is that credibility factors are replaced by some other function when used as weights.