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A GENERALIZED LOSS RATIO METHOD DEALING WITH UNCERTAIN VOLUME MEASURES

Published online by Cambridge University Press:  22 April 2018

Ulrich Riegel
Ulrich Riegel*
Affiliation:
Munich Reinsurance Company, Königinstrasse 107, 80802 Munich, Germany E-Mail: [email protected]
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Abstract

Unlike chain ladder, the loss ratio method requires volume measures. Typically, these volumes are assumed to be known. In practice, however, accurate volume measures are rarely available. We interpret the available volumes as estimators for the true volume measures and analyze the consequences for the loss ratio method. In particular, we calculate the mean squared error of prediction, including uncertainty of volume measures, and derive approximately optimal weights for the observed incremental loss ratios. We then introduce a generalization of the loss ratio method that is tailored to the situation of uncertain volume measures and calculate the prediction uncertainty of this generalized loss ratio method.

Keywords

Loss ratio methodadditive modelvolume measuresIBNR methodmean squared error
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 48 , Issue 2 , May 2018 , pp. 699 - 747
Copyright
Copyright © Astin Bulletin 2018 

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