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.
Highlights
The International Accounting Standards Board (IASB) is responsible for setting accounting standards for the countries that are a part of the Organisation for Economic Cooperation and Development
A general approach to quantifying an Risk adjustment (RA) based on the cost of capital (CoC) technique is described in Meyers (2017), which incorporates stochastic path dependencies given that the capital amount is impacted as time progresses, and such an approach is applied to the claims development triangles of the unpaid losses
This study proposed an efficient and accurate methodology and elaborated on the entire process of estimating RAs for claims according to the requirements of International Financial Reporting Standards (IFRS) 17
Summary
The International Accounting Standards Board (IASB) is responsible for setting accounting standards for the countries that are a part of the Organisation for Economic Cooperation and Development. In accordance with the requirements of IFRS 17, we apply four RA calculation methods to determine the RAs based on the distribution of outstanding claims liabilities.
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