The Credibility of the Overall Rate Indication: Making the Theory Work

Actuaries have used the so-called “square root rule” for the credibility for many years, even though the “F” value can take any value, and its assumption that the data receiving the complement of credibility is stable is often violated. Best estimate credibility requires fewer or no assumptions, but often requires certain key constants. This paper provides a variety of methods for estimating the key constants needed to implement best estimate credibility formulas, especially those arising from the Gerber-Jones formula. As such, this paper provides the tools needed to implement key theoretical formulas in practical actuarial work.