On the problematic of reserving and stochastic loss models

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Serval ID
serval:BIB_A7A767824052
Type
PhD thesis: a PhD thesis.
Collection
Publications
Institution
Title
On the problematic of reserving and stochastic loss models
Author(s)
Parlogea Bucurescu C.
Director(s)
Dubey A.
Institution details
Université de Lausanne, Faculté des hautes études commerciales
Address
HEC Lausanne Quartier UNIL-Dorigny Bâtiment Internef CH - 1015 Lausanne
Publication state
Accepted
Issued date
2010
Language
english
Number of pages
128
Notes
REROID:R005496340
Abstract
Abstract
Traditionally, the common reserving methods used by the non-life actuaries are based on the assumption that future claims are going to behave in the same way as they did in the past. There are two main sources of variability in the processus of development of the claims: the variability of the speed with which the claims are settled and the variability between the severity of the claims from different accident years. High changes in these processes will generate distortions in the estimation of the claims reserves.
The main objective of this thesis is to provide an indicator which firstly identifies and quantifies these two influences and secondly to determine which model is adequate for a specific situation.
Two stochastic models were analysed and the predictive distributions of the future claims were obtained. The main advantage of the stochastic models is that they provide measures of variability of the reserves estimates. The first model (PDM) combines one conjugate family Dirichlet - Multinomial with the Poisson distribution. The second model (NBDM) improves the first one by combining two conjugate families Poisson -Gamma (for distribution of the ultimate amounts) and Dirichlet Multinomial (for distribution of the incremental claims payments).
It was found that the second model allows to find the speed variability in the reporting process and development of the claims severity as function of two above mentioned distributions' parameters. These are the shape parameter of the Gamma distribution and the Dirichlet parameter. Depending on the relation between them we can decide on the adequacy of the claims reserve estimation method. The parameters have been estimated by the Methods of Moments and Maximum Likelihood. The results were tested using chosen simulation data and then using real data originating from the three lines of business: Property/Casualty, General Liability, and Accident Insurance. These data include different developments and specificities.
The outcome of the thesis shows that when the Dirichlet parameter is greater than the shape parameter of the Gamma, resulting in a model with positive correlation between the past and future claims payments, suggests the Chain-Ladder method as appropriate for the claims reserve estimation. In terms of claims reserves, if the cumulated payments are high the positive correlation will imply high expectations for the future payments resulting in high claims reserves estimates.
The negative correlation appears when the Dirichlet parameter is lower than the shape parameter of the Gamma, meaning low expected future payments for the same high observed cumulated payments. This corresponds to the situation when claims are reported rapidly and fewer claims remain expected subsequently. The extreme case appears in the situation when all claims are reported at the same time leading to expectations for the future payments of zero or equal to the aggregated amount of the ultimate paid claims. For this latter case, the Chain-Ladder is not recommended.
Create date
23/08/2010 11:39
Last modification date
20/08/2019 15:12
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