Research On The Measurement Of One-year Reserve Risk Based On Double Chain Ladder Model

Since we entered the 21st century,the rapid development of global financial markets in the economic globalization and financial integration brings unprecedented volatility in the financial markets,how to deal with the increasingly serious risk of financial institutions has become urgent top priority.Nowadays accurate and reasonable measure of financial risk has been closely watched financial institutions,policy authorities and academia.Compared to other financial institutions,such as trust companies,banks and so on,it is the insurance companies that bear the brunt of risk.International regulators improve the rules and regulations of insurance companies gradually.Solvency ? is the updated set of Solvency ?,which introduces strong changes comparing to prudential rules in Solvency ?.These new solvency requirements will be more risk-sensitive and more sophisticated than in the past.The Solvency Capital Requirement shall cover at least several risks,of them non-life reserve risk is absolutely necessary.However,regarding the evaluation of the claims reserves volatility,almost all stochastic methods which have been proposed up to now concentrate on an ultimate view,not a one-year view mentioned in the Solvency ? framework.In the Solvency ? framework,the time horizon is one year.Given the time horizon defined in the Directive,one of the major issues raised by Solvency ? to non-life insurance undertakings is to understand how to measure volatility in their claims reserves over a one-year time horizon.Subsequently,the scholars have done a lot of research and achieved remarkable results.Generally speaking,one-year reserve risk measurement methods are divided into two categories:analytical methods and stochastic simulation methods,but overall,compared with analytical methods,stochastic simulation methods have more advantagesIn this paper,we detail the Double Chain Ladder model(DCL)and the application of this method in the evaluation of reserve and the measurement of one-year reserve risk.Finally,with the help of statistical software R,under the DCL,we give a quantitative analysis to one-year reserve risk by using a common data and the bootstrap method,and obtain the predictive distribution of Claims Development Result(CDR).The research shows that DCL is a simple,practical and effective stochastic model in the measurement of one-year reserve risk.This study provides an important reference for improving the 2nd generation solvency regulatory and supervisory system of China.