Chain claims reserving methods in non-life insurance

Abstract

Abstract Considering that the reliability of reserves valuation directly influences the financial strength of an insurance company, the main aim of this paper is to present a claims reserving estimation for a Romanian non-life insurer based on the most popular chain methods which are typically used in practice for the estimation of outstanding claims reserves in general insurance industry: Standard Chain Ladder and Munich Chain Ladder both on the claims incurred data and claims paid data. The tail development factors have been estimated based on the curve-fitting methods. The obvious advantage of these methods is represented by its simplicity of the practicality application. The results of the research under two chain claims reserving models reveal significant differences between the Standard Chain Ladder and Munich Chain Ladder with respect to the claims reserves level. Probably the Standard Chain Ladder based on paid method underestimates the outstanding loss liabilities and Standard Chain Ladder based on Incurred method overestimates the claims reserves. The claims reserves predictions under the Paid Munich Chain Ladder and Incurred Munich Chain Ladder are between the two Standard Chain Ladder outstanding loss liabilities estimates. The results of the tail extrapolation shown that the incorporation of the tail factors can have a significant impact on claims predictions.