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Role of Generalised Linear Model in non-life pricing Phase3

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Before reading this article, make sure that you read phase1 and phase2. Here are the link:
Phase1: http://www.actuarysense.com/2018/10/role-of-generalised-linear-model-in-non.html
Phase2: http://www.actuarysense.com/2018/11/role-of-generalised-linear-model-in-non.html 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 an Actuary calculates Expense for Pension Fund

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Let’s see some Actuarial Terminologies from Accounting Valuations point of view under US GAAP/IAS 19R: 1.Accumulated Benefit Obligations (ABO): ABO is an approximate amount of a company's pension plan liability at a single point in time. ABO is estimated based on the assumption that the pension plan is to be terminated immediately; it does not consider any future salary increases. Changes in annual ABO are mainly determined by changes in service costs, interest costs, contributions by plan participants. 2.Projected Benefit Obligation (PBO): A pension's projected benefit obligation (PBO) is an actuarial liability equal to the present value of liabilities earned and the present value of liability from future compensation increases.  Note: ABO differs from PBO as ABO does not includes any assumption about future compensation levels. For plans with flat benefit or non-pay related pension benefit formulas, the ABO and PBO will be same.

Today we will see Accounting Valuation through US …

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