Copula-an alternative approach to IBNR reserving
This project examines the dependence structure between 2 variables – developmental time and claim size using copulas, in order to evaluate the incurred but not reported (IBNR) claim reserves more accurately. It also seeks to present a general framework with clear steps and R codes for researchers or...
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| Main Authors: | , , |
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| Other Authors: | |
| Format: | Final Year Project |
| Language: | English |
| Published: |
2013
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| Subjects: | |
| Online Access: | http://hdl.handle.net/10356/51419 |
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| Institution: | Nanyang Technological University |
| Language: | English |
| Summary: | This project examines the dependence structure between 2 variables – developmental time and claim size using copulas, in order to evaluate the incurred but not reported (IBNR) claim reserves more accurately. It also seeks to present a general framework with clear steps and R codes for researchers or practitioners make reference if they wish to apply the copula method in practice.
The steps put forward by Pettere and Kollo (2006) were followed closely in our analysis with data obtained from a Singaporean general insurance company dealing with motor insurance. Three computationally-friendly Archimedean copulas – Frank, Gumbel and Clayton were used for simulating the two factors of interest. Estimates produced by the copula method and the classical method currently practised in the industry – the chain ladder, were then compared.
Our findings show that the copula method leads to a much closer estimate to the actual experience of the company than the estimate computed using the traditional chain ladder method. This suggests that the copula method is indeed a viable alternative method for evaluation of IBNR reserves that may be considered in the industry. |
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