Estimation of Car Insurance Loss Ratio Using the Peaks over Threshold Method

POT방법론을 이용한 자동차보험 손해율 추정

  • Received : 20111100
  • Accepted : 20121200
  • Published : 2012.02.29


In car insurance, the loss ratio is the ratio of total losses paid out in claims divided by the total earned premiums. In order to minimize the loss to the insurance company, estimating extreme quantiles of loss ratio distribution is necessary because the loss ratio has essential prot and loss information. Like other types of insurance related datasets, the distribution of the loss ratio has heavy-tailed distribution. The Peaks over Threshold(POT) and the Hill estimator are commonly used to estimate extreme quantiles for heavy-tailed distribution. This article compares and analyzes the performances of various kinds of parameter estimating methods by using a simulation and the real loss ratio of car insurance data. In addition, we estimate extreme quantiles using the Hill estimator. As a result, the simulation and the loss ratio data applications demonstrate that the POT method estimates quantiles more accurately than the Hill estimation method in most cases. Moreover, MLE, Zhang, NLS-2 methods show the best performances among the methods of the GPD parameters estimation.


Peaks Over Threshold(POT);Generalized Pareto distribution(GPD);Loss ratio;Hill estimator;extreme quantile estimation


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Supported by : 한국연구재단