Showing posts from May, 2018

Role of Generalised Linear Model in non-life pricing Phase3

Before reading this article, make sure that you read phase1 and phase2. Here are the link:
Phase2: So we know that the purpose of GLM is to find the relationship between mean of the response variable and covariates.

In this Article we are going to talk about Linear Predictors.
Linear Predictor: Let’s denote it with, “η” (eta). So, linear predictor is actually a function of covariates. For example, in the normal linear model where function is Y = B0 + B1x. So linear predictor will be η = B0 + B1x. Always note that linear predictor has to be linear in its parameter. In this case parameters are B0 and B1. But still the question is how I came up with B0 + B1x as a function? First of all, note that broadly there are two types of Covariates. 1. Variables: It takes the numerical value. For example: age of policyholder, years of ex…

How to Calculate Minimum Required Contribution that has to be paid by Employer to fund the Plan

As we know that Under DB pension plans, Employer has to contribute towards the plan, so today we are going to see how much an employer has to contribute and up to how much employer can avail the Tax benefit. Let’s Start with basic terminologies: 1.Stabilized rates: Pension regulators has set the Segmented interest rates that we can use to calculate our Liability.
2.Non-Stabilized rates: Non-stabilized rates are lower than stabilized rates, so technically Liability will be higher under non-stabilized rates.
3.FT= Funding Target, it means the liability of a plan calculated using 3 segment stabilized interest rates.
4.FT(max) = Funding Target, it means the liability of a plan calculated using non-stabilized interest rates.
5.TNC = Target Normal Cost = Present value of benefits accruing during the plan year.
6.EIR = Effective interest rate; it is the single rate of interest which is used to determine the PV of plan’s accrued benefit, would result in an amount equal to the Funding target of the p…