Predictive Distributions of Outstanding Liabilities in General Insurance

• Published in: Annals of actuarial science 2006-09, Vol.1 (2), p.221-270
• Main Authors: England, P. D., Verrall, R. J.
• Format: Article
• Language: English
• ISSN: 1748-4995; 1748-5002
• DOI: 10.1017/S1748499500000142

This paper extends the methods introduced in England & Verrall (2002), and shows how predictive distributions of outstanding liabilities in general insurance can be obtained using bootstrap or Bayesian techniques for clearly defined statistical models. A general procedure for bootstrapping is described, by extending the methods introduced in England & Verrall (1999), England (2002) and Pinheiro et al. (2003). The analogous Bayesian estimation procedure is implemented using Markov-chain Monte Carlo methods, where the models are constructed as Bayesian generalised linear models using the approach described by Dellaportas & Smith (1993). In particular, this paper describes a way of obtaining a predictive distribution from recursive claims reserving models, including the well known model introduced by Mack (1993). Mack's model is useful, since it can be used with data sets which exhibit negative incremental amounts. The techniques are illustrated with examples, and the resulting predictive distributions from both the bootstrap and Bayesian methods are compared.