Fitting Loss Distributions In The Presence Of Rating Variables

The paper addresses certain complications regarding the process of fitting and measuring the fit of loss distributions. These complications result from policy limits and deductibles that render the loss distributions incomplete. A numerical example illustrates the concepts. A new methodology is introduced by the author for incorporating rating factors into the curve fitting process. The effect of rating factors on loss distributions is assessed by a likelihood ratio test. Quality of fit is measured by generalized residuals.