The goal of this paper was to exploit the Bayesian approach and MCMC procedures to structure an internal model to quantify the reserve risk of a non-life insurer under Solvency II regulation. To this aim, we provide an extension of the Correlated Chain Ladder (CCL) model to the one-year time horizon. In this way, we obtain the predictive distribution of the next year obligations and we are able to assess a capital requirement compliant with Solvency II framework. Numerical results compare the one-year CCL with other traditional approaches, such as Re-Reserving and the Merz and Wüthrich formula. One-year CCL proves to be a legitimate alternative, providing values comparable with the more traditional approaches and more robust and accurate risk estimations, that embed external knowledge not present in the data and allow for a more precise and tailored representation of the risk profile of the insurer.

Ercole Carnevale, G., Clemente, G. P., A Bayesian Internal Model for Reserve Risk: An Extension of the Correlated Chain Ladder, <<RISKS>>, 2020; 2020 (8): 1-20. [doi:10.3390/risks8040125] [http://hdl.handle.net/10807/163592]

A Bayesian Internal Model for Reserve Risk: An Extension of the Correlated Chain Ladder

Clemente, Gian Paolo
Secondo
2020

Abstract

The goal of this paper was to exploit the Bayesian approach and MCMC procedures to structure an internal model to quantify the reserve risk of a non-life insurer under Solvency II regulation. To this aim, we provide an extension of the Correlated Chain Ladder (CCL) model to the one-year time horizon. In this way, we obtain the predictive distribution of the next year obligations and we are able to assess a capital requirement compliant with Solvency II framework. Numerical results compare the one-year CCL with other traditional approaches, such as Re-Reserving and the Merz and Wüthrich formula. One-year CCL proves to be a legitimate alternative, providing values comparable with the more traditional approaches and more robust and accurate risk estimations, that embed external knowledge not present in the data and allow for a more precise and tailored representation of the risk profile of the insurer.
2020
Inglese
Ercole Carnevale, G., Clemente, G. P., A Bayesian Internal Model for Reserve Risk: An Extension of the Correlated Chain Ladder, <<RISKS>>, 2020; 2020 (8): 1-20. [doi:10.3390/risks8040125] [http://hdl.handle.net/10807/163592]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10807/163592
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