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A Numerical Method of Finding a Suitable Bonus Scale

1962; Cambridge University Press; Volume: 2; Issue: 1 Linguagem: Inglês

10.1017/s0515036100007662

1783-1350

Erkki Pesonen,

Credit Risk and Financial Regulations

The bonus system used by Finnish insurers is as follows: Policies are divided into 4 bonus classes, C 1 , C 2 , C 3 , C 4 , each of them being initially placed in class C 1 . After one claimless year, a policy placed in class C h is transferred to class C h +1 ( h ≤ 3) from the beginning of the following year. After a claim year, each policy is entered back to class C 1 . (Whether the number of claims is one or more does not play any role in this transition system.) From the initial premium, i.e. the premium in class C 1 , a reduction of p i , per cent is granted in class C i . In numbers these percentages are as follows: In present investigations there is a trend to replace this scale by another in which mere contingency would not cause too great a change in the premium and in which the „test period” would be longer. Let us suppose that we want to find a suitable percentage scale P = ( P 1 , P 2 , …, P m ) for a bonus system ( C l , C 2 , …, C m ) with a given transition mechanism according to which for each bonus class C h two bonus classes C i and C j are given to which the policy is transferred after one year from C h according as there have been claims or not.