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1、2014-CAS8§5Venter,ExperienceRatingHCM5/13/14,Page198Section5,Venter,ExperienceRating123ThearticlebyVentershouldbereadafteryouhavereadtheotherpapersonExperienceRating.Venterʼsarticlewaswrittentohelpexplainthe1991changesintheWorkersCompensationExperienceRatingPlan.Itwasdire
2、ctedatactuariesandotherknowledgeableinsuranceprofessionals.Thisshortreadinghasarelativelyhighratioofexpectedpointsontheexamperpage.Itisdensewithideas.CarefullylookoverhisTablesanddiscussionatVenterʼspages7through9.124Afterthefirstreading,dosomepastexamquestions.Thenwaitaf
3、ewweeksandreaditagain,andtrysomemorepastexamquestions.Repeattheprocessasoftenasyouareabletooruntilyouaresatisfiedthatyouhaveabsorbedthemainideas.123“ExperienceRating-EquityandPredictiveAccuracy,”byGaryG.Venter.CASLeaningObjectivesB3andB4.124Thesearesimilartomaterialin“Wor
4、kersʼCompensationExperienceRating:WhatEveryActuaryShouldKnow,”byGillam,whichIdiscussinmyprevioussection.2014-CAS8§5Venter,ExperienceRatingHCM5/13/14,Page199ParameterUncertainty:125ParameteruncertaintyisoneofthephenomenathathelpsexplainNCCIʼscurrentformoftheexperienceratin
5、gplancredibilitiesasafunctionofthesizeofrisk.Therearerandomfluctuationsfromyeartoyearintheriskprocessesofinsureds.Parameteruncertaintyinvolvesfluctuationsthataffectmostorallinsuredssomewhatsimilarly,regardlessofsize.Venteratpage6:“allinsuredsaresubjecttovariationsduetocha
6、ngingconditionsandthisdoesnotdecreasebysizeoffirm.”Forexample,WorkersCompensationinsuredsʼriskprocessesmightvarydependingonthechangesineconomicconditions,recessionorexpansion.Similarinsuredswouldbeeffectedsimilarlyregardlessofsize.Forexample,automobileinsuredsʼriskprocess
7、esmightvarydependingontheseverityofthewinterweatherineachyear.Similarcommercialautomobileinsuredswouldbeeffectedsimilarlyregardlessofsize.Duetoparameteruncertainty,thevarianceofthelossratiosofthelargeinsuredsdeclinemoreslowlythantheinverseofsize.ThisturnsouttoleadtoBandKt
8、hatincreasewithsize.126Therefore,thecredibilityforlargeinsuredsislessthanitwouldhavebeen;therear
