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The balance property in insurance pricing
Stockholm University, Faculty of Science, Department of Mathematics. ETH Zurich, Switzerland.ORCID iD: 0000-0001-7235-384x
Number of Authors: 22026 (English)In: Scandinavian Actuarial Journal, ISSN 0346-1238, E-ISSN 1651-2030, Vol. 2026, no 5, p. 506-543Article in journal (Refereed) Published
Abstract [en]

Unbiasedness, auto-calibration and the balance property are three important features that actuarial pricing algorithms should satisfy. Unbiasedness is a global property that describes price levels on average across the entire insurance portfolio. Auto-calibration is a local unbiasedness property that describes price levels on average on price cohorts. The balance property is a global property that describes price levels point-wise. This paper focuses on the balance property. It is the easiest of the three to verify and to rectify, and it has the nice interpretation in terms of an allocation of the totally observed claims cost. We provide different methods of rectifying the balance property, and we discuss how these methods impact prediction accuracy. We find that there is not one method that is generally better than the others, thus, the chosen optimal method is a case by case choice.

Place, publisher, year, edition, pages
2026. Vol. 2026, no 5, p. 506-543
Keywords [en]
actuarial pricing, auto-calibration, balance property, generalized linear model, GLM, maximum likelihood estimation, MLE, regression, Unbiasedness
National Category
Probability Theory and Statistics
Identifiers
URN: urn:nbn:se:su:diva-247921DOI: 10.1080/03461238.2025.2552909ISI: 001567996900001Scopus ID: 2-s2.0-105016650872OAI: oai:DiVA.org:su-247921DiVA, id: diva2:2004821
Available from: 2025-10-08 Created: 2025-10-08 Last updated: 2026-06-15Bibliographically approved

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