Modeling and measuring incurred claims risk liabilities for a multi-line property and casualty insurer

In their paper titled "Modeling and measuring incurred claims risk liabilities for a multi-line property and casualty insurer," Carlos Andrés Araiza Iturria, Frédéric Godin, and Mélina Mailhot propose a stochastic model that enables insurers with multiple business lines to measure their liabilities for incurred claims risk and calculate associated capital requirements. The authors' model incorporates several desirable features that allow it to accurately reproduce empirical properties of loss ratio dynamics. One of the key features of the proposed model is its integration of a double generalized linear model which relies on accident semester and development lag effects to represent both the mean and dispersion of loss ratio distributions. Additionally, the model includes an autocorrelation structure between loss ratios of various development lags as well as a hierarchical copula model driving dependence across different business lines. The authors demonstrate that their model allows for joint simulation of loss triangles which enables quantification of overall portfolio risk through risk measures. Furthermore, they show that the diversification benefit associated with economic capital requirements can be measured in accordance with IFRS 17 standards which recognize such benefits. To illustrate how capital should be allocated across business lines based on the Euler allocation principle, the authors estimate parameters based on car insurance data obtained from the General Insurance Statistical Agency (GISA) and conduct numerical simulations whose results are presented in this paper. Overall, this study provides valuable insights into how property and casualty insurers with multiple business lines can effectively measure their liabilities for incurred claims risk while also calculating associated capital requirements. The proposed stochastic model offers several desirable features that enable it to accurately reproduce empirical properties of loss ratio dynamics while allowing for joint simulation of loss triangles and quantification of overall portfolio risk through risk measures.

Modeling and Measuring Incurred Claims Risk Liabilities for a Multi-Line Property and Casualty Insurer

Modeling and Measuring Incurred Claims Risk Liabilities for a Multi-Line Property and Casualty Insurer

"In their paper titled "Modeling and measuring incurred claims risk liabilities for a multi-line property and casualty insurer," Carlos Andrés Araiza Iturria, Frédéric Godin, and Mélina Mailhot propose a stochastic model that enables insurers with multiple business lines to measure their liabilities for incurred claims risk and calculate associated capital requirements. "

The authors' model incorporates several desirable features that allow it to accurately reproduce empirical properties of loss ratio dynamics. One of the key features of the proposed model is its integration of a double generalized linear model which relies on accident semester and development lag effects to represent both the mean and dispersion of loss ratio distributions. Additionally, the model includes an autocorrelation structure between loss ratios of various development lags as well as a hierarchical copula model driving dependence across different business lines.

The authors demonstrate that their model allows for joint simulation of loss triangles which enables quantification of overall portfolio risk through risk measures. Furthermore, they show that the diversification benefit associated with economic capital requirements can be measured in accordance with IFRS 17 standards which recognize such benefits.

To illustrate how capital should be allocated across business lines based on the Euler allocation principle, the authors estimate parameters based on car insurance data obtained from the General Insurance Statistical Agency (GISA) and conduct numerical simulations whose results are presented in this paper.

Conclusion

Overall, this study provides valuable insights into how property and casualty insurers with multiple business lines can effectively measure their liabilities for incurred claims risk while also calculating associated capital requirements.