A Micro-Level Claim Count Model with Overdispersion and Reporting Delays
24 Pages Posted: 2 Jan 2016
Date Written: December 31, 2015
The accurate estimation of outstanding liabilities of an insurance company is an essential task. This is to meet regulatory requirements, but also to achieve efficient internal capital management. Over the recent years, there has been increasing interest in the utilisation of insurance data at a more granular level, and to model claims using stochastic processes. So far, this so-called 'micro-level reserving' approach has mainly focused on the Poisson process.
In this paper, we propose and apply a Cox process approach to model the arrival process and reporting pattern of insurance claims. This allows for over-dispersion and serial dependency in claim counts, which are typical features in real data. We explicitly consider risk exposure and reporting delays, and show how to use our model to predict the numbers of Incurred-But-Not-Reported (IBNR) claims. The model is calibrated and illustrated using real data from the AUSI data set.
Keywords: Cox process, Shot noise, Insurance claims counts, Markov Chain Monte Carlo, Filtering
JEL Classification: C51, C53, C55, G22
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