NET CLAIMS RESERVES OF AN EARTHQUAKE INSURANCE: BORNHUETTER-FERGUSON METHOD AND OVERDISPERSED POISSON MODEL

• Main Author: MAHENDRA KUSUMA DJATI (10112008), STEFANUS
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/24377
• Institution: Institut Teknologi Bandung

Earthquake is a natural disaster that may cause significant losses of lives as well as financial. Indonesia is a country which is prone to tectonic and volcanic earthquakes. Therefore, an instrument for managing risks due to earthquake is required; one of which is insurance. One of the challenges faced by insurance companies associated with earthquake insurance business is the determination of the claim reserves. In this final project (Tugas Akhir), the net claims reserve of an earthquake <br /> <br /> <br /> <br /> <br /> insurance business is determined using Bornhuetter-Ferguson method (Mack, 2008); Bornhuetter-Ferguson Stochastic method based on Overdispersed Poisson (ODP) model; and Catastrophe Model. The data has been recorded in the form of a run-off triangle. The reserves obtained by the method and model considered are compared to determine the companys claims reserves. It is found that the prediction of the claims reserve using the Bornhuetter-Ferguson method is Rp 14,743,865,289 with the prediction error of Rp 8,988,959,996; and the prediction of the claims reserve <br /> <br /> <br /> using the Bornhuetter-Ferguson Stochastic method based on ODP model is Rp 2,585,136,416 with the prediction error of Rp 2,207,204,749. The prediction of the claims reserve using Catastrophe Model cannot be obtained since the given <br /> <br /> <br /> run-off triangle recorded claims due to volcanic and tectonic earthquakes; whereas the volcanic earthquake cannot be modeled using the companys Catastrophe Model. <br /> <br /> <br /> The prediction of the claims reserve using the Overdispersed Poisson model is the same as that predicted using the Chain Ladder (CL) method. Since the Chain Ladder <br /> <br /> <br /> method is not appropriate to analyze the given run-off triangle, the prediction of the claims reserve using the BF Stochastic method based on the Overdispersed Poisson model is not used. It is concluded that the prediction of the net claims of the earthquake insurance using the Bornhuetter-Ferguson method by Mack (2008) is used.