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Foundations of Casualty Actuarial Science

to measure costs with sufficient accuracy. There
will always be the desire to estimate costs for smaller
groups or subdivisions, even sown to the individual
insured level. Random fluctuations in claims
experience however make it difficult. There is
always a difference between theoretical accuracy
and practical accuracy.

(iv) Reliability or predictive stability - Based on a
given set of loss data, the apparent cost of different
groups may be different. The differences, may be
due to random fluctuations, or the cost differences
may change over time. E.g, historical differences
between genders may diminish or disappear as
societal roles change.

B. Operational Criteria - Actuarial criteria must be
tempered by practical or operational considerations. The
most important consideration is that the rating variables
have an objective definition. Moreover, there should be
little ambiguity, class definitions should be mutually
exclusive and exhaustive, and the opportunity for

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