The Research On The Application Of Stochastic Simulation In Outstanding Claims Reserve

Outstanding reserve is a very important liability of P&C company, and is related with solvency. So both insurer and government focus on it. In practice, outstanding reserve is derived from the delay of reporting claims, investigation and claim adjustment, and it contains much uncertainty. Chain ladder method has been widely used in loss reserving, it is very simple, and many insurers prefer the method. But it also has many disadvantages. For business with long tail or new business, when the payment data is insufficient, we can not get the payment patterns of the tail. The loss development factors are same for the same development year of different accident years. And the result of the chain ladder method is one value, we can not get the distribution of reserves. So people try to modify the chain ladder method.With the development of statistic and computer technology, stochastic simulation has been used in loss reserving. In this thesis the stochastic model for loss reserving is made from log-normal cumulative distribution function by using MCMC algorithms and implemented using WinBUGS. Combining with auto loss data, we calculate the outstanding reserve and the payments in future years using the new method. Comparing with traditional chain ladder method, the stochastic simulation method can simulate the tail payment patterns objectively, and reflect the stochastic characteristic. Also, we can get the distribution of reserves and the payment patterns of every accident years, so it provides much information about loss reserving and insurer's on-going operation.