Claims Run-Off Uncertainty: The Full Picture

45 Pages Posted: 15 Nov 2014 Last revised: 3 Jul 2015

See all articles by Michael Merz

Michael Merz

University of Hamburg

Mario V. Wuthrich

RiskLab, ETH Zurich

Date Written: July 3, 2015

Abstract

The aim of this contribution is to revisit, clarify and complete the picture of uncertainty estimates in the chain-ladder (CL) claims reserving method. Therefore, we consider the conditional mean square error of prediction (MSEP) of the total prediction uncertainty (using Mack’s formula) and the one of the one-year prediction uncertainty (using the Merz-Wüthrich formula). We discuss and compare these two formulas and we derive the missing pieces that close the gap between the one-year and total run-off uncertainty view.

Keywords: Claims reserving, chain-ladder method, gamma-gamma Bayesian chain-ladder model, conditional mean square error of prediction, claims development result, one-year uncertainty, run-off uncertainty, Mack’s formula, Merz- Wüthrich formula, risk margin, R package ChainLadder

JEL Classification: G22, G28, D46

Suggested Citation

Merz, Michael and Wuthrich, Mario V., Claims Run-Off Uncertainty: The Full Picture (July 3, 2015). Swiss Finance Institute Research Paper No. 14-69. Available at SSRN: https://ssrn.com/abstract=2524352 or http://dx.doi.org/10.2139/ssrn.2524352

Michael Merz

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Mario V. Wuthrich (Contact Author)

RiskLab, ETH Zurich ( email )

Department of Mathematics
Ramistrasse 101
Zurich, 8092
Switzerland

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