An Individual Claims Reserving Model

Abstract

Traditional Chain Ladder models are based on a few cells in an upper triangle and often give inaccurate projections of the reserve. Traditional stochastic models are based on the same few summaries and in addition are based on the often unrealistic assumption of independence between the aggregate incremental values. In this paper a set of stochastic models with weaker assumptions based on the individual claims development are described. These models can include information about settlement and can handle seasonal effects, changes in mix of business and claim types as well as changes in mix of claim size. It is demonstrated how the distribution of the process can be specified and especially how the distribution of the reserve can be determined. The method is illustrated with an example.

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