IDEAS home Printed from https://ideas.repec.org/a/spr/fininn/v7y2021i1d10.1186_s40854-021-00287-5.html
   My bibliography  Save this article

Claim reserving for insurance contracts in line with the International Financial Reporting Standards 17: a new paid-incurred chain approach to risk adjustments

Author

Listed:
  • Yixing Zhao

    (Sun Yat-sen University)

  • Rogemar Mamon

    (The University of Western Ontario
    University of the Philippines Visayas)

  • Heng Xiong

    (Wuhan University
    Wuhan University)

Abstract

This study considers the risk management of insurance policies in line with the implementation of the new International Financial Reporting Standards 17. It applies the paid-incurred chain method to model the future unpaid losses by combining the information channels of both the incurred claims and paid losses. We propose the recovery of the empirical distribution of the outstanding claims liabilities associated with a group of contracts via moment-based density approximation. We determine the risk measures and adjustments that are compliant with the new standard using the Monte–Carlo simulation method and approximated distributions. The historical data on the aggregate Ontario automobile insurance claims over a 15-year period are analyzed to examine the appropriateness and accuracy of our approach.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:fininn:v:7:y:2021:i:1:d:10.1186_s40854-021-00287-5
    DOI: 10.1186/s40854-021-00287-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1186/s40854-021-00287-5
    File Function: Abstract
    Download Restriction: no
    File URL: https://libkey.io/10.1186/s40854-021-00287-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Abdallah, Anas & Boucher, Jean-Philippe & Cossette, Hélène, 2015. "Modeling Dependence Between Loss Triangles With Hierarchical Archimedean Copulas," ASTIN Bulletin, Cambridge University Press, vol. 45(3), pages 577-599, September.
    2. Zhao, Yixing & Mamon, Rogemar & Gao, Huan, 2018. "A two-decrement model for the valuation and risk measurement of a guaranteed annuity option," Econometrics and Statistics, Elsevier, vol. 8(C), pages 231-249.
    3. Himchan Jeong & Dipak Dey, 2020. "Application of a Vine Copula for Multi-Line Insurance Reserving," Risks, MDPI, vol. 8(4), pages 1-23, October.
    4. Mack, Thomas, 1991. "A Simple Parametric Model for Rating Automobile Insurance or Estimating IBNR Claims Reserves," ASTIN Bulletin, Cambridge University Press, vol. 21(1), pages 93-109, April.
    5. Merz, Michael & Wüthrich, Mario V., 2010. "Paid-incurred chain claims reserving method," Insurance: Mathematics and Economics, Elsevier, vol. 46(3), pages 568-579, June.
    6. Mack, Thomas, 1993. "Distribution-free Calculation of the Standard Error of Chain Ladder Reserve Estimates," ASTIN Bulletin, Cambridge University Press, vol. 23(2), pages 213-225, November.
    7. Peters, Gareth W. & Dong, Alice X.D. & Kohn, Robert, 2014. "A copula based Bayesian approach for paid–incurred claims models for non-life insurance reserving," Insurance: Mathematics and Economics, Elsevier, vol. 59(C), pages 258-278.
    8. Avanzi, Benjamin & Taylor, Greg & Wong, Bernard, 2018. "Common Shock Models For Claim Arrays," ASTIN Bulletin, Cambridge University Press, vol. 48(3), pages 1109-1136, September.
    9. Happ, Sebastian & Merz, Michael & Wüthrich, Mario V., 2012. "Claims development result in the paid-incurred chain reserving method," Insurance: Mathematics and Economics, Elsevier, vol. 51(1), pages 66-72.
    10. Gao, Huan & Mamon, Rogemar & Liu, Xiaoming, 2017. "Risk measurement of a guaranteed annuity option under a stochastic modelling framework," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 132(C), pages 100-119.
    11. Renshaw, A.E. & Verrall, R.J., 1998. "A Stochastic Model Underlying the Chain-Ladder Technique," British Actuarial Journal, Cambridge University Press, vol. 4(4), pages 903-923, October.
    12. Pigeon, Mathieu & Antonio, Katrien & Denuit, Michel, 2014. "Individual loss reserving using paid–incurred data," Insurance: Mathematics and Economics, Elsevier, vol. 58(C), pages 121-131.
    13. Hertig, Joakim, 1985. "A Statistical Approach to IBNR-Reserves in Marine Reinsurance," ASTIN Bulletin, Cambridge University Press, vol. 15(2), pages 171-183, November.
    14. Gang Kou & Özlem Olgu Akdeniz & Hasan Dinçer & Serhat Yüksel, 2021. "Fintech investments in European banks: a hybrid IT2 fuzzy multidimensional decision-making approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-28, December.
    15. Pigeon, Mathieu & Antonio, Katrien & Denuit, Michel, 2014. "Individual loss reserving using paid–incurred data," LIDAM Reprints ISBA 2014024, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    16. Gogol, Daniel, 1993. "Using expected loss ratios in reserving," Insurance: Mathematics and Economics, Elsevier, vol. 12(3), pages 297-299, June.
    17. England, P.D. & Verrall, R.J. & Wüthrich, M.V., 2019. "On the lifetime and one-year views of reserve risk, with application to IFRS 17 and Solvency II risk margins," Insurance: Mathematics and Economics, Elsevier, vol. 85(C), pages 74-88.
    18. Wang, Shaun S., 2002. "A Universal Framework for Pricing Financial and Insurance Risks," ASTIN Bulletin, Cambridge University Press, vol. 32(2), pages 213-234, November.
    19. Shi, Peng & Frees, Edward W., 2011. "Dependent Loss Reserving using Copulas," ASTIN Bulletin, Cambridge University Press, vol. 41(2), pages 449-486, November.
    20. Happ, Sebastian & Wüthrich, Mario V., 2013. "Paid-Incurred Chain Reserving Method With Dependence Modeling," ASTIN Bulletin, Cambridge University Press, vol. 43(1), pages 1-20, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eduardo Ramos-P'erez & Pablo J. Alonso-Gonz'alez & Jos'e Javier N'u~nez-Vel'azquez, 2020. "Stochastic reserving with a stacked model based on a hybridized Artificial Neural Network," Papers 2008.07564, arXiv.org.
    2. Eduardo Ramos-P'erez & Pablo J. Alonso-Gonz'alez & Jos'e Javier N'u~nez-Vel'azquez, 2022. "Mack-Net model: Blending Mack's model with Recurrent Neural Networks," Papers 2205.07334, arXiv.org.
    3. Peters, Gareth W. & Dong, Alice X.D. & Kohn, Robert, 2014. "A copula based Bayesian approach for paid–incurred claims models for non-life insurance reserving," Insurance: Mathematics and Economics, Elsevier, vol. 59(C), pages 258-278.
    4. Fersini, Paola & Melisi, Giuseppe, 2016. "Stochastic model to evaluate the fair value of motor third-party liability under the direct reimbursement scheme and quantification of the capital requirement in a Solvency II perspective," Insurance: Mathematics and Economics, Elsevier, vol. 68(C), pages 27-44.
    5. Himchan Jeong & Dipak Dey, 2020. "Application of a Vine Copula for Multi-Line Insurance Reserving," Risks, MDPI, vol. 8(4), pages 1-23, October.
    6. Ioannis Badounas & Georgios Pitselis, 2020. "Loss Reserving Estimation With Correlated Run-Off Triangles in a Quantile Longitudinal Model," Risks, MDPI, vol. 8(1), pages 1-26, February.
    7. Avanzi, Benjamin & Taylor, Greg & Vu, Phuong Anh & Wong, Bernard, 2020. "A multivariate evolutionary generalised linear model framework with adaptive estimation for claims reserving," Insurance: Mathematics and Economics, Elsevier, vol. 93(C), pages 50-71.
    8. Crevecoeur, Jonas & Antonio, Katrien & Verbelen, Roel, 2019. "Modeling the number of hidden events subject to observation delay," European Journal of Operational Research, Elsevier, vol. 277(3), pages 930-944.
    9. Marie Michaelides & Mathieu Pigeon & H'el`ene Cossette, 2022. "Individual Claims Reserving using Activation Patterns," Papers 2208.08430, arXiv.org, revised Aug 2023.
    10. Benjamin Avanzi & Gregory Clive Taylor & Bernard Wong & Xinda Yang, 2020. "On the modelling of multivariate counts with Cox processes and dependent shot noise intensities," Papers 2004.11169, arXiv.org, revised Dec 2020.
    11. Benjamin Avanzi & Yanfeng Li & Bernard Wong & Alan Xian, 2022. "Ensemble distributional forecasting for insurance loss reserving," Papers 2206.08541, arXiv.org, revised Feb 2024.
    12. Liivika Tee & Meelis Käärik & Rauno Viin, 2017. "On Comparison of Stochastic Reserving Methods with Bootstrapping," Risks, MDPI, vol. 5(1), pages 1-21, January.
    13. Huang, Jinlong & Wu, Xianyi & Zhou, Xian, 2016. "Asymptotic behaviors of stochastic reserving: Aggregate versus individual models," European Journal of Operational Research, Elsevier, vol. 249(2), pages 657-666.
    14. Anja Breuer & Yves Staudt, 2022. "Equalization Reserves for Reinsurance and Non-Life Undertakings in Switzerland," Risks, MDPI, vol. 10(3), pages 1-41, March.
    15. Yanez, Juan Sebastian & Pigeon, Mathieu, 2021. "Micro-level parametric duration-frequency-severity modeling for outstanding claim payments," Insurance: Mathematics and Economics, Elsevier, vol. 98(C), pages 106-119.
    16. Lopez, Olivier, 2019. "A censored copula model for micro-level claim reserving," Insurance: Mathematics and Economics, Elsevier, vol. 87(C), pages 1-14.
    17. Avanzi, Benjamin & Taylor, Greg & Vu, Phuong Anh & Wong, Bernard, 2016. "Stochastic loss reserving with dependence: A flexible multivariate Tweedie approach," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 63-78.
    18. Arthur Charpentier & Mathieu Pigeon, 2016. "Macro vs. Micro Methods in Non-Life Claims Reserving (an Econometric Perspective)," Risks, MDPI, vol. 4(2), pages 1-18, May.
    19. Wahl, Felix & Lindholm, Mathias & Verrall, Richard, 2019. "The collective reserving model," Insurance: Mathematics and Economics, Elsevier, vol. 87(C), pages 34-50.
    20. Avanzi, Benjamin & Wong, Bernard & Yang, Xinda, 2016. "A micro-level claim count model with overdispersion and reporting delays," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 1-14.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:fininn:v:7:y:2021:i:1:d:10.1186_s40854-021-00287-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.