Reserving by Conditioning on Markers of Individual Claims: A Case-Study Using Historical Simulation
North American Actuarial Journal, 2015, 19(4), 273-288
21 Pages Posted: 10 Jul 2014 Last revised: 17 May 2017
Date Written: April 16, 2015
This paper explores the use of claim specific characteristics, so-called claim markers, for loss reserving with individual claims. Starting from the approach of Rosenlund (2012) we develop a stochastic Reserve by Detailed Conditioning ('RDC') method which is applicable to a micro-level data set with detailed information on individual claims. We use historical simulation to construct the predictive distribution of the outstanding loss reserve by simulating payments of a claim, given its claim markers. We explore how to incorporate different types of claim specific information when simulating outstanding loss reserves, and evaluate the impact of the set of markers and their specification on the predictive distribution of the outstanding reserve. We demonstrate the performance of the method on a portfolio of general liability insurance policies for private individuals from a European insurance company.
Keywords: claims reserving, micro-level loss reserving, claim characteristics, historical simulation
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