The Measurement Of Reserve Risk Based On Binary Mack Model

Solvency Ⅱ gives the new requirements for capital adequacy mechanism of non-life insurance company, develops a more stringent regulatory requirements, aimed at establishing a sound reserve risk management standards. For non-life insurance company, in order to resist the future uncertainty of payment, we need to increase fund to cover the part of the losses that may occur in the future, the use of this part of funds as a composition of the solvency capital requirement is called reserve risk. Currently, most of the measurement of the reserve risk is to measure the ultimo risk, the ultimo risk is covered uncertainty until the end of the whole process in progress. Under the Solvency Ⅱ framework, the time of the reserve risk measurement is set for one year, is intended to cover uncertainty of payment over the next 12 months.One-year reserve risk measurement methods are divided into two categories:analytical methods and stochastic Re-reserving methods. Scholars using these two methods, and based on Mack model, to measure the one-year reserve risk effective. As an important extension of Mack model, binary Mack model considers the correlation between different policies, is applicable for insurance business which is subdivided into a number of policy groups in the insurance practice. Based on binary Mack model, the measurement of ultimo reserve risk can be obtained by calculating prediction of the mean square error, however, the measurement of one-year reserve risk is rarely studied.This paper summarizes the reserving Risk under the definition of Solvency Ⅱ framework, and based on binary Mack model, on the one hand we calculate the prediction of the mean square error, on the other hand we use the stochastic Re-reserving method to measure the one-year reserve risk. Then analyze the risk reserve by used data as an example. This can provide a reference for our insurance company in China Solvency Ⅱ framework for a more cautious assessment of the reserve risk.