Stochastic Loss Reserving with Individual Claim Size Modeling
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Date
2019-07
Authors
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Publisher
University Of Ghana
Abstract
This study demonstrated the application of chain ladder, Bornhuetter-Ferguson, Mack
model, probability and other statistical models in exploring loss reserving and claim
behavior. Secondary data sets from an insurance company in Ghana were used for
analysis and deductions. The focus of this research was to determine the probability
distribution for the claims, fit the basic reserving methods (Chain-ladder, Bornhuetter-
Ferguson) and juxtapose that with the Mack model with the help of basic stochastic
assumptions. The research was peaked by determining the suitable model among the
three models used for the available data. The chain ladder revealed that an amount of
GHC 56,547,882 must be reserved while the Bornhuetter-Ferguson estimated an amount
of GHC 230,516. Finally, the Mack stochastic model suggested that the latest payment
should be GHC 30,008,300.16 with a development of 20% across the development years.
The model also proposed that the ultimate and IBNR claims reserves should amount
to GHC 149,758,939.87 and GHC 119,756,639.71 respectively. The behavior of the claim
payment was known to follow a log-normal distribution. It was established that the Mack
model was very robust as compared to other models. Future research should expand
their application to bootstrapping for modeling of various parameters and reserves. A
contingency fund must be created by insurance firms to suffice for payment in case there
is a catastrophic event.
Description
MPhil. Actuarial Science
Keywords
Stochastic Loss, Claim Size Modeling