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Application of a Vine Copula for Multi-Line Insurance Reserving

Author

Listed:
  • Himchan Jeong

    (Department of Statistics and Actuarial Science, Simon Fraser University, 8888 University Drive, Burnaby, BC V5A 1S6, Canada)

  • Dipak Dey

    (Department of Statistics, University of Connecticut, 215 Glenbrook Rd. U-4120, Storrs, CT 06269-4120, USA)

Abstract

This article introduces a novel use of the vine copula which captures dependence among multi-line claim triangles, especially when an insurance portfolio consists of more than two lines of business. First, we suggest a way to choose an optimal joint loss development model for multiple lines of business that considers marginal distribution, vine copula structure, and choice of family for each pair of copulas. The performance of the model is also demonstrated with Bayesian model diagnostics and out-of-sample validation measures. Finally, we provide an implication of the dependence modeling, which allows a company to analyze and establish the risk capital for whole portfolio.

Suggested Citation

  • Himchan Jeong & Dipak Dey, 2020. "Application of a Vine Copula for Multi-Line Insurance Reserving," Risks, MDPI, vol. 8(4), pages 1-23, October.
    • Handle: RePEc:gam:jrisks:v:8:y:2020:i:4:p:111-:d:432602
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    References listed on IDEAS

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    Cited by:

    1. Anja Breuer & Yves Staudt, 2022. "Equalization Reserves for Reinsurance and Non-Life Undertakings in Switzerland," Risks, MDPI, vol. 10(3), pages 1-41, March.
    2. Saeide Sefidi & Mojtaba Ganjali & Taban Baghfalaki, 2022. "Analysis of ordinal and continuous longitudinal responses using pair copula construction," METRON, Springer;Sapienza Università di Roma, vol. 80(2), pages 255-280, August.
    3. Yixing Zhao & Rogemar Mamon & Heng Xiong, 2021. "Claim reserving for insurance contracts in line with the International Financial Reporting Standards 17: a new paid-incurred chain approach to risk adjustments," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-26, December.

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