ESTIMATION OF OUTSTANDING CLAIMS LIABILITY USING MACK'S CHAIN LADDER METHOD AND SENSITIVITY ANALYSIS WITH LEVERAGE METHODOLOGY IN LONG-TAIL INSURANCE BUSINESS

• Main Author: Tanzi, Jonathan
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/84137
• Institution: Institut Teknologi Bandung

A general insurance business consists of a short- tail and a long-tail insurance businesses. A long-tail insurance business is one in which the duration between the occurrence of an event which caused a claim to occur until the claim is finalized is more than a year. An insurance company need to estimate its outstanding claims liability and to measure its uncertainty to be able to set up enough reserve to pay the outstanding claims. In this Final Project, the Mack’s Chain Ladder method is used to estimate the outstanding claims liability of a runoff triangle of paid claims data of a long-tail insurance business. Furthermore, a sensitivity analysis of the estimation is carried out using a measurement called the Leverage to observe the sensitivity of the estimation if there is an addition of an incremental claims in a particular cell of a runoff triangle. The uncertainty of the estimation results of outstanding claims liability to changes in claims in the runoff triangle is observed by determining the mean squared error (MSE) of the leverage. Finally, the leverage value for the 0.995-quantile of the outstanding claims liability is analyzed with the assumption that the outstanding claims liability follows a lognormal distribution.