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JUN 2 9. 1988

1surance Mathematics

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ctuarial
1Journal

spersen, Per Kragh Andersen, Kn

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e rnsurance for Insulin-Dependent

odel of Term Life Insurance Con.

Schlesinger: Additive and Multiplj.
::es of Risk 41

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ng with Fixed Costs per Claim

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mtial Estimation Problems for the

Formerly published as Skandinavisk Aktuarietidskrift

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RECE\VED
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UN\V. WIS. LIBRAR'f -

t
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j1987 No. 3-4

'

~ The Almqvist & Wiksell Periodical Company, Stockholm, Sweden

1arial Journal

scand. Actuarial J. 1987: 113-127

tries, The Actuarial Society

:dish Society of Actuaries.
my, Stockholm, Sweden

The Poisson-Inverse Gaussian Disti:ibution as an

Alternative to the Negative Binomial
By Gordon E. Willmot

B.eng~ von Bahr, Tekn. dr., Actuary of Ska :

d1a Liv. Address: Skandia Ins. Co S
IJ
. , 1035
Stockholm, Sweden
0

Ragnar Norberg, Professor at the u .

n1vers11
of Oslo. Address: Matematisk Institutt
~
0 !JI
"t
f
0
'
vers1 Y o
slo, P.O. Box 1053-BJindern.
'
N-0316 Oslo 3, Norway

Abstract

Bjorn Palmgren, Fil. dr Address. Sk

andia
.
.
Ins. Co., S-103 50 Stockholm, Sweden
,
Henrik Ram/au-Hansen Lie act A
.
'
.
. , ssoc1ate
Professor at the University of Copenh
agen.
Address:
Laboratory
of
Actuarial
Math
.
.
.
emat- '
1cs, Umverslty of Copenhagen, Universitetsparken 5, DK-2100 Copenhagen 0, Denmark

Matti Ruohonen, Dr. Phil. Address: Planning .

Dept., Sampo Mutual Ins. Co., P.O. Box 1
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The basic distributional properties and estimation techniques of the Poisson-Inverse Gaussian (P-IG) distribution are reviewed. Its use both as a
mixed and compound claim frequency model are also discussed, as well as
a review of the aggregate claims distribution when the P-IG is the claim
frequency component. The many properties which are analogous to those
of the negative binomial are emphasized, and the superior fit to automobile
claim frequency data is demonstrated. The P-IG merits consideration as a
model for claim frequency data due to its good fit to data, physical justification, and its abundance of convenient mathematical properties.

1. Introduction

Mixed Poisson distributions have proved to be a very promising alternative

to the Poisson distribution as a model for claim frequency data (cf. Seal,
1982), and the negative binomial distribution is of central importance within
the family because of its convenient mathematical properties and improved
fit to claim frequency data over the Poisson distribution. Furthermore, it
may be justified from a physical standpoint as a model to reflect heterogeneity of risk characteristics within an insurance portfolio, or as a model to
reflect the possibility of multiple claims from a single event. Beard, Pentikainen & Pesonen (1984) and Biihlmann (1970) discuss the heterogeneity
concept in some detail.
In this paper an al~ernative mixed Poisson distribution called the Pois'?onInverse Gaussian (P-IG) is discussed, and it is found to have very similar
mathematical and statistical properties to the negative binomial. It is also
well suited for use as a claim frequency model due to its tractability and the
fact that it may be used to model the same physical phenomena as the
negative binomial. The superior fit to the negative binomial for automobile
claim frequency data may make it more suitable in some instances, particularly in light of its similar mathematical and physical properties. Gossiaux &
Lemaire (1981) suggest some other models which provide a reasonable fit
but do not share with the P-IG the many and varied properties of the latter.
A distribution considered by Kestemont & Paris (1985) is a generalization
of the P-IG, and also provides an extremely good fit but is more complicat8-878532

Scand. Actuarial J. 1987

114

G. E. Willmot

ed to work with since the mixing distribution is more complex and p~rame
ter estimation is more difficult. Sichel (1971) anq Rubinstein, Zucchini &
Juritz (1987) discuss a second generalization of the P-IG.
The mathematical and statistical properties of the distribution together
with some of the ways in which it may be used to model certain phenomena
are reviewed in this paper, and the extremely good fit to automobile claim
frequency data is demonstrated using the same data as Gossiaux & Lemaire
(1981). Section 2 gives the distributional form, the moments, and a few
other characteristics. Section 3 describes an inverse Gaussian mixed Poisson process where the P-IG arises naturally, and the resulting model may
also be interpreted as a birth process model (cf. Biihlmann, 1970). An
interpretation of the P-IG as a compound Poisson distribution itself suggests its potential use as a model for multiple claims from a single event,
and this is described in section 4. A discussion of the compound P-IG to
represent the total claims distribution is the subject matter of section 5.
Various methods of estimation are briefly reviewed in section 6, and the fit
of the model to the data of Gossiaux & Lemaire (1981) is discussed in
section 7.

2. Derivation of the distribution

The probabilities of the P-IG are given by

Pn =

A."e-).
--u(A.)dA.; n = 0, 1, 2, ...
o n!
oo

(1)

where
(2)

is the probability density function of the inverse Gaussian distribution with

parameters >0 and {3>0 (cf. Folks & Chhikara, 1978). The probability
generating function (pgf) is

L Pn z" =
00

P(z) =

e'41-l{l-[1-2P(z-1))'12}

(3)

n=O

and from this one finds that

(4)
and
(5)
Scand. Actuarial J. 1987

The Poisson-Inverse Gaussian distribution

on is more complex and parameand Rubinstein, Zucchini &
on of the P-IG.
rties of the distribution together
1sed to model certain phenomena
1ely good fit to automobile claim
3.me data as Gossiaux & Lemaire
form, the moments, and a few
:m inverse Gaussian mixed Poisly, and the resulting model may
odel (cf. Biihlmann, 1970). An
Poisson distribution itself sugiple claims from a single event,
1ssion of the compound P-IG to
he subject matter of section 5.
eviewed in section 6, and the fit
Lemaire (1981) is discussed in

The remaining probabilities are most easily calculated

recursiveliusing (4)
.
and (5) together with (cf. Willmot, 1986)

n 1)

')R (
2
1 -3-) p +
p n=2 3 4
Pn=--=tf._
' ' , ..
1+2/3
2n
n-I
n(n-1)(1+2/3) n- 2

erse Gaussian distribution with

hikara, 1978). The probability

_uB-1

-~~

(2n/3)-

I
I

l/2(--=tf._
2R)n-J/2n -l n--')oo

(7)

1+2/3

'

is reached. This is similar to the negative binomial distribution in that one

would usually use a simple recursive formula (Panjer, 1981) to compute the
probabilities and a simple asymptotic formula (Embrechts, Maejima &
Teugels, 1985) is available for the latter distribution as well.
An explicit expression for the probabilities, although not terribly convenient, is given by

(n-l+k)! (_f}_)k(1+2R)-(n+k)l2.n= 1 2 3 ....

Pn =p0 ~~
f'
'
' ' '
n.I L..J
k=O (n -1-k)lkl
. . 2

The kth factorial moment of the distribution is

(2)

(6)

until the asymptdtic result (cf. Teugels & Willmot, 1987)

I
(1)

115

I
I

p<k>(l) = k

L . (k-1 +m)! (_f}_)m

(8)

k-1

m=O

(k-1-m)!m!

(9)

and so the mean and variance an~ and (l+/3) respectively. The distribution is quite heavily skewed to the right and hence conservative from an
insurer's standpoint, and is even more so than the negative binomial
distribution since, for given mean and variance 02, the skewness exceeds
that of the negative binomial by - 1a- 3(02-) 2
Like the negative binomial, the distribution is unimodal and closed under
convolution. If N;; i= l, 2, ... , m are independent P-IG random variables
with parameters; and P respectively, then N 1+N2+ ... +Nm is again P-IG,
but with parameters 1+ 2+ ... +m and /3.
Further discussion of the distribution may be found in Sichel (1971),
Willmot (1986), and Rubinstein et al. (1987).

(3)

3. An Inverse Gaussian mixed Poisson process

(4)

(5)

Lundberg (1940) and McFadden (1965) discuss the mixed Poisson process
in great detail. The marginal probability of n claims in the time interval
(s, s+t] for this process is given by
Pn(t) =

L"" (A.tte-J.1 dU(A.)

o

(10)

n!

Scand. Actuarial J. 1987

G. E. Willmot

116
i

!\

II
il
I\.

II

ii".

ll

l'
I

which, when U(.) is an inverse Gaussian distribution function, isagain of

the form (1). The mixed Poisson process has considerable appeal from aii
insurance standpoint as a model to reflect heterogeneity of the risks in the
portfolio (cf. Beard et al., 1984), anci the Polya process is the most common
example of this type of process. The latter process is obtained when U(.) is
a gamma distribution function and (10) becomes the negative binomial
probabilities.
The mixed Poisson process may also be viewed as a birth process (cf.
Lundberg, 1940) with intensities of claim frequencies given by
u<n+l)(t)
-----'--'-

.A. (t) = n

(11)

u<n)(t)

where u<k>(t) is the kth derivative of the Laplace transform of the mixing
function, namely,
(12)
Thus, if n claims have occurred in (0, t], then ).n(t) h+o(h) is the probability
of a claim in (t, t+h].
Let Ka(x) be the modified Bessel function of the third kind (cf. Jorgensen,
1982). Then
K

(x)
n+l/2

= (_!!_)112e-x ~
2x

(n+k)! (2x)-k

L.J ( -k)lkl
k=O n
'

(lJ)

for n=O, 1, 2, ... , and Ka(x)=K_a(x). If one defines

R (x)
a

= Ka+1(x)
Ka(X) '

(14)

then, for the inverse Gaussian mixed Poisson process, it may be shown that
(15)
Hence an explicit expression is obtainable for ).n(t). Since
R_112(X) = 1

(16)

and
Ra(X) = ~+{Ra-1(x)}-1,
x

(17)

it is a simple matter to compute (15) recursively.

Thm>, the inverse Gaussian mixed Poisson process is tractable to work
with, particularly if a computer is available.
Scand. Actuarial J. 1987

The Poisson-Inverse Gaussian distribution

iistribution function, is again of
ias considerable appeal from an
heterogeneity of the risks in the
1lya process is the most common
process is obtained when U(.) is
Jecomes the negative binomial
~

viewed as a birth process (cf.

requencies given by
(11)

aplace transform of the mixing

4. The P-IG as a compound Poisson model

As shown by Willmot (1986), the pgf (3) may be written as
P(z)

= 1{Q(z)-l}

A.= ,8-1{ (1+2,8)1/2_ 1}

(13)

etines
(14)
t

process, it may be shown that

~=0,1,2,. ...

(15)

(16)

Z _

Q( ) - ~qn

Zn_

{l-2(z-1)} 112 -(1+2/D

l -(1+ 2,8)112

rely.
l

process is tractable to work

112
(20)

is the pgf of an extended truncated negative binomial distribution (Engen,

1974) with probabilities
r(n-1/2)

(_Jj}__)n
1+2/3

2(n !)f (

~)

. ,n-1,2,3,.
...
112
{ 1-(1+2,8)- } .

(21)

This representation is reminiscent of the negative binomial distribution

(for which Q(z) is a logarithmic series pgf) and so the P-IG may also arise as
the total number of claims distribution from a compound Poisson process of
claims, where claim causing evep.ts occur according to a Poisson process,
and the number of claims per event distribution is given by (21). Such
processes are referred to as "clustering Poisson" processes by Thyrion
(1960), and when Q(z) is a logarithmic series pgf, the process is referred to
as an Arfwedson process after Arfwedson (1955).
Following this interpretation, one may be interested in fitting the distribution (21) to data representing the number of claims per accident. Fitting
using the method of maximum likelihood to an i.i.d. sample of size n is
easier than the logarithmic series (which requires numerical techniques)
(20)
may
be
expressed
as
A(Oz){A(0)}- 1
where
since
112
1
A(x)=l-(1-x) and 0=2,8(1+2,8)- . Thus it is a power series distribution
(cf. Johnson & Kotz, 1969, pp. 33-36) and so the maximum likelihood
estimate of the mean is the sample mean X of the data. Since the mean is
Q'(l)= {(1+2,8) 112 +1}/2,

(17)

(19)

and

qn-

of the third kind (cf. Jorgensen,

(18)

where

(12)

n A.n(t) h+o(h) is the probability

117

(22)

the maximum likelihood estimate of ,8 is

P=2X(X-1).

(23)

As an example of the fit of (21), Kupper ( 1965) gives the number of injuries
per accident in traffic accidents involving bodily injury in Zurich in 1961-2.
Scand. Actuarial J. 1987

118

G. E. Willmot

The distribution (,71) and the logarithmic distribution were both fitted to the
data by the method of maximum likelihood. The fitted values are given 'in
the table below.
Number of
Injuries
1
2
3
4

5
6
?!:-7

Total

Number of
Accidents

Logarithmic
Series

4 121
430
71
19
6
4
1 (11)

4 080.78
479.68
75.18
13.26
2.49
0.49
0.12

(21)
4 124.03
414.93
83.49
21.00
5.92
1.79
0.84

4 652

4 652.00
28.33
3
0.000

4 652.00
3.31
3
0.346

X2(r)
r

SL

Distribution

The Pearson chi-squared goodness of fit statistic, degrees of freedom and

significance level are displayed at the bottom. For this particular example,
the logarithmic gives a much poorer fit to the data, which are quite heavily
skewed. If the number of accidents appeared to follow a Poisson distribution, then the P-IG would be a better choice than the negative binomial as a
model for the total number of injuries.
5. The compound P-IG model

i
, I/
'i '11
'

Suppose that the total claims is given by Y=X1+ ... +XN where N is a P-IG
random variable. If the X;'s are i.i.d. with distribution function F(x) and
Laplace transform
/(s) =

L'' e-xdF(x),

(24)

then Y has Laplace transform

E(e-Y)

= eiP-10-{t-2P[fb}-1]}112>.

(25)

There are several tools available to compute the distribution of Y. Since

(25) is of a very simple form, one could numerically invert the transform
using, for example, the Fast Fourier transform method (Bertram, 1981), or
by reexpressing (25) using (18) as
(26)

the recursive approach of Sundt & Jewell (1981) and Panjer (1981) may be
used. As discussed by Willmot (1986), the probabilities {qn; n= 1, 2, 3, ... }
Scand. Actuarial J. 1987

The Poisson-Inverse Gat5.ssian distribution

tribution were both fitted to the

. The fitted values are given in
Distribution
(21)
4 124.03
414.93
83.49
21.00
5.92
1.79
0.84

119

satisfy qn=(a+bn- 1) qn-I for n~2 and so the distribution with compound
Laplace transform Q[/'(s)] may be obtained recursively, and this distribution -.
used as the effective '"single claim;" amount distribution in a (second)
compound Poisson recursion to get the distribution of Y.
In addition, from (7) and Embrechts, Maejima & Teugels (1985), the
asymptotic formula'
;,'

',

l;,.

(27)
complements the recursive approach, which is more cumbersome for large
x. In (27), the distribution function F(x) must be non-arithmetic and x>O is

the solution to

4 652.00
3.31

(28)

Under the same conditions, the stop-loss premium satisfies (cf. Teugels &
Willmot, 1987)

0.346
:atistic, degrees of freedom and
n. For this particular example,
e data, which are quite heavily
d to follow a Poisson distributhan the negative binomial as a

L
oo

Pr(Y>t) dt-f!4l-I

{-f'<-x>}
2nf3

112

x- 312 e-1<X, x-oo.

(29)

Once again, (27) is reminiscent of the asymptotic formula for the compound negative-binomial (cf. Embrechts et al., 1985.)
6. P-IG Parameter estimation

X 1+ ... +XN where N is a P-IG

distribution function F(x) and

(24)

Suppose that the data consist of n i.i.d. observations which may be grouped
so that
(30)

Fk =no. of policies with k claims; k = 0, 1, 2, ....

Then
(31)

(25)
1te the distribution of Y. Since
merically invert the transform
m method (Bertram, 1981), or

and the sample average is

00

X= n- 1

L kFk.

(32)

k=O

Clearly, is the sample mean and so an obvious estimator of is

(26)
}81) and Panjer (1981) may be
>robabilities {qn;n=l,2,3, ... }

/l=X

(33)

and (33) is in fact the maximum likelihood estimate of, as shown below.
Thus, it is of interest to consider estimation for {3.
Scand. Actuarial J. 1987

120

G. E. Willmot

Moment estimation for ,8 is straightforward. The sample variance is

00

si = n-1 2: k2Fk _g2

(34)

k=O

and the moment estimate of ,8 is

(35)
which is a simple but not an efficient estimator (Sichel, 1982). If the
proportion of zeroes n- 1F0 is large, then a more efficient and equally simple
estimate is obtained by matching the mean and the proportion of zeroes to
those of the underlying distribution, yielding

fl,= 2X{X+log(n- 1F 0)}.

(36)

{log(n- 1F 0)} 2

Sichel (1982) has found (36) to be better than (35) in many situations, but
maximum likelihood estimation is often much better than either of these
two.
Maximum likelihood estimation for the P-IG is similar to that for the
negative binomial in many respects. Like the negative binomial, the maximum likelihood estimate of the mean is the sample mean (i.e. (33) gives the
estimate of) and a relatively simple one-dimensional Newton-Raphson
numerical routine may be used to obtain the maximum likelihood estimate fl
of ,8, as is now demonstrated.
The log-likelihood for the sample is
00

l(,,8) =

2: Fklogpk.

(37)

k=O

. I

To derive the equations satisfied by the maximum likelihood estimates,

note from (3) that
P'(z) = {1-2,8(z-1)}- 112P(z)

(38)

and that
.I

_E__P(z)= P(z) -(1+2P)P'(z)+1-zP'(z) .

a
f3
,8

(39)

The coefficients of! on both sides of (39) are equal, and so division by pk
yields

~logpk = _!_ + ~ -( 1+2,8) tk

a

f3

where
Scand. Actuarial J. 1987

f3

(40)

The Poisson-Inverse Gaussian distribution

121

d. The sample variance is

(4ll
(34)
Similarly, since

(35)

_E_p(z) = _i!:.__E__:P,(z)+ z-l P'(z),

8/3
f3 8
/3

(42)

it follows that
timator (Sichel, 1982). If the
xe efficient and equally simple
md the proportion of zeroes to

8
-log
pk= 8/3

11 (

.c..

f3

8
k-tk
-log
pk ) + --.
8
f3

(43)

Hence, from (37) and (43),

(36)

m (35) in many situations, but

.ch better than either of these
>-IG is similar to that for the
e negative binomial, the maxiample mean (i.e. (33) gives the
dimensional N ewton-Raphson
naximum likelihood estimate tJ

___ /(, /3) =

8{3

i!:._ {...___ /(,

{3 8

(38)

(44)

co

(45)

LFkt:=nX,
k=O

where t: is the maximum likelihood estimate of tk. From (37) and (40),

taximum likelihood estimates,

Fk tk.

k=O

Since partials of (37) with respect to and f3 are identically zero at the
maximum likelihood estimates, it follows from (44) that

2
x-(
/3) f

{3

_g__ /(, /3) = ..!!.. + 1:!!:._

(37)

/3)} + !:!..f3 X- J_f3 f

f3

I+

(46)

Fk tk,

k=O

and so setting (46) equal to zero and using (45) yields the result (33). Sichel
(1971) and Willmot (1988) discuss these results in greater detail.
To find /5, let {pk(/3); k=O, 1, 2, ... } be the probabilities of the P-IG with
replaced by ft=X, treated as a function of {3. These probabilities are easily
computed using (6) and (7). Also let tk(/3)=(k+l)Pk+l(/3)/pk(/3). Then, from
(45), tJ is the solution to
co

(47)

c(/3)= LFktk(/3)-nX=O.
(39)

k=O

It is a straightforward matter using (43) to show that the derivative of (47) is

:e equal, and so division by Pk

co

co

c'(/3) = 13-2(1 +/3) L Fk tk(/3)[tk+1(/3)-tk(/3)]-f3-1 L Fk tk(/3).

k=O

(40)

(48)

k=O

An updated estimate of tJ is given by

P-c(/J) [c'(/J)r 1

(49)
Scand. Actuarial J. 1987

122

G. E. Willmot

where P is the previous value of P. An initial estimate of Pto begin the

numerical procedure is given by (35) or (36) or any other suitable choice...
For example, if n- 1F 0 is small, one may wish to choose k such that n- 1pk is
large, and then use (6) with replaced by X and Pk by n- 1Fk. This gives an
equation for f3 which may be solved to yield the estimate

- 2

k(k-l)Fk-(X) Fk_ 2
2
= (k-1)(2k-3)Fk_ 1-2k(k-l)Fk

(50)

Alternatively, the profile likelihood l(X, {3) as a function of f3 may be

examined.
A convenient parameterization for the negative binomial from a statistical standpoint is given by Beard et al. (1984, p. 40), due to the fact that the
maximum likelihood estimators of the two parameters (one of which is the
mean) are orthogonal and hence asymptotically independent (cf. Cox &
Reid, 1987). Once again, an analogous property holds for the P-IG, since
the parameter .?.. is orthogonal to the mean where f3 is (replaced by)
(51)

as shown by Willmot (1988) and Rubinstein et al. (1987).

Estimation with the zero-truncated distribution {p/(1-p 0); n=l, 2, 3, ... }
is discussed by Ord & Whitmore (1986) and Sichel (1986), while a P-IG
regression model is discussed by Dean, Lawless & Willmot (1987).

7. Application to automobile claim frequency data

Gossiaux & Lemaire (1981) analyzed six data sets giving the number of
automobile insurance claims per policy over a fixed period of time. The
data are very heavily skewed, and the Poisson is inappropriate, yielding a
poor fit.
The maximum likelihood estimated fit to the data is given for the negative
binomial and the P-IG. The fit of the negative binomial is adequate in some
cases, but the fit of the P-IG is superior in all six cases using either the
Pearson goodness of fit statistic or the maximum log-likelihood. Furthermore, the fit is markedly superior in all but data set 4. The fit of the P-IG to
data set 5 appears to be marginal, but if frequency classes 3 and 4 are
combined in the calculation of the Pearson statistic (as Gossiaux and
Lemaire (1981) did), then the fit would be judged to be excellent on this
basis. Groupings were done in order that the expected frequencies are large
enough so that the chi-squared approximation to the Pearson statistic is
tenable.
Scand. Actuarial J. 1987

The Poisson-Inverse Gaussian distribution

tial estimate of to begin the

) or any other suitable choice.
1
1 to choose k such that n- Fk is
and Pk by n- 1Fk. This gives an
. the estimate
(50)
' as a function of

f3

may be

gative binomial from a statistip. 40), due to the fact that the
arameters (one of which is the
cally independent (cf. Cox &
1erty holds for the P-IG, since
where f3 is (replaced by)
(51)

et al. (1987).
ution {pi(l-p 0 ); n= l, 2, 3, ... }
td Sichel (1986), while a P-IG
1less & Willmot (1987).

123

Data set I

..

No. of
claims
k

No. of
policies
Fk

NB

P-IG

0
1
2
3
4
5
6

103 704
14 075
1 766
255
45
6
2

103 723.61
13 989.95
1 857.08
245.19
32.29
4.24
0.56

103 710.03
13 989.95
1 784.91
254.49
40.42
6.94
1.26

Total

119 853

119 852.92

119 852.70

Maximum log-likelihood
Pearson goodness-of-fit
Chi-squared
Degrees of freedom
Significance level

-54 615.315

-54 609.758

12.37
3
0.006

0.78
3
0.855

Data set 2

data
ata sets giving the number of
r a fixed period of time. The
on is inappropriate, yielding a
1e data is given for the negative
! binomial is adequate in some
all six cases using either the
imum log-likelihood. Furtherata set 4. The fit of the P-IG to
requency classes 3 and 4 are
m statistic (as Gossiaux and
udged to be excellent on this
expected frequencies are large
.on to the Pearson statistic is

No. of
claims
k

No. of
policies
Fk

NB

P-IG

0
1
2
3
4
5

370 412
46 545
3 935
317
28
3

370 438.94
46 451.28
4 030.50
297.82
20.09
1.28

370 435.18
46 476.38
3 995.76
307.67
23.12
1.75

Total

421 240

421 239.91

421 239.86

Maximum log-likelihood
Pearson goodness-of-fit
Chi-squared
Degrees of freedom
Significance level

-171 136.966

-171 134.472

7.94
2
0.019

2.74
2
0.254
Scand. Actuarial J. 1987

124

G. E. Willmot

Data set 3

iii

1;:

No. of
Claims
k

No. of
Policies
Fk

NB

P-IG

6
7

7 840
1 317
239
42
14
4
4
1

7 847.01
1 288.36
256.53
54.07
11.71
2.58
0.57
0.13

7 844.01
1 306.12
238.23
53.27
13.75
3.89
1.17
0.37

Total

9 461

9 460.96

9 460.81

!:

2
3
4

I?

:11

Maximum log-likelihood
Pearson goodness-of-fit
Chi-squared
Degrees of freedom
Significance level

-5 348.040

-5 343.511

14.73
3
0.002

4.54
3
0.209

Data set 4

No. of
claims
k

No. of
policies
Fk

0
1
2
3
4
5
Total

NB

P-IG

3 719
232
38
7
3

3 719.22
229.90
39.91
8.42
1.93
0.46

3 718.58
234.54
34.86
8.32
2.45
0.80

4 000

3 999.84

3 999.55

Maximum log-likelihood
Pearson goodness-of-fit
Chi-squared
Degrees of freedom
Significance level
Scand. Actuarial J. 1987

-1 183.550

-1 183.524

1.17
2
0.557

0.54
2
0.762

The Poisson-Inverse Gaussian distribution

125

Data set 5
"-.

No. of
claims
G

44.01
06.12
38.23
53.27
13.75
3.89
1.17
0.37

0
2
3
4

Total

60.81
-5 343.511
4.54
3
0.209

No. of
policies
Fk

P-IG

NB

96 978
9 240
704
43
9

96 980.82
9 230.90
708.62
50.05
3.38

96 978.53
9 240.40
697.63
52.85
4.21

106 974

106 973.77

106 973.62

Maximum log-likelihood
Pearson goodness-of-fit
Chi-squared
Degrees of freedom
Significance level

-36 104.099

-36 103.574

9.03
2
0.011

6.12
2
0.047

Data set 6

lG

No. of
claims
k

No. of
policies
Fk

NB

P-IG

20 596.76
2 631.03
318.37
37.81
4.45
0.52
0.06

20 595.74
2 638.81
308.08
39.68
5.65
0.87
0.14

23 589.00

23 588.97

!34.54
34.86
8.32
2.45
0.80

2
3
4
5
6

20 592
2 651
297
41
7
0
1

)99.55

Total

23 589

118.58

-1 183.524
0.54
2
0.762

Maximum log-likelihood
Pearson goodness-of-fit
Chi-squared
Degrees of freedom
Significance level

-10 223.420

-10 221.868

3.60
2
0.165

0.76
2
0.684
Scand. Actuarial J. 1987

126

G. E. Willmot

1
!

8. Conclusions

The P-IG is a distribution which is competitive with the negative binomial

both in terms of its mathematical and statistical properties as well as its
potential for entertafoing a wide variety of physical phenomena. With the
ready accessability of computers, there should be little hesitation in considering it as an alternative to the negative binomial or other claim frequency
distributions, since, in addition to its attributes cited above, it provides a
superior fit to most competitors for automobile claim data.
Acknowledgement
This research was supported by the Natural Sciences and Engineering Research Council of
Canada.

References

11,I

! '

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Received April 1987, revised October 1987

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Gordon E. Willmot
Department of Statistics and Actuarial Science
University of Waterloo
Waterloo, Ontario
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