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AN INDUSTRY QUESTION: THE ULTIMATE AND ONE-YEAR RESERVING UNCERTAINTY FOR DIFFERENT NON-LIFE RESERVING METHODOLOGIES

Published online by Cambridge University Press:  01 July 2014

Eric Dal Moro  and
Joseph Lo
Eric Dal Moro*
Affiliation:
Chief Reserving Actuary SCORSwitzerland
Joseph Lo
Affiliation:
Head of Actuarial Research and Development, Aspen, London, UK E-Mail: [email protected]
*
E-Mail: [email protected]
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Abstract

In the industry, generally, reserving actuaries use a mix of reserving methods to derive their best estimates. On the basis of the best estimate, Solvency 2 requires the use of a one-year volatility of the reserves. When internal models are used, such one-year volatility has to be provided by the reserving actuaries. Due to the lack of closed-form formulas for the one-year volatility of Bornhuetter-Ferguson, Cape-Cod and Benktander-Hovinen, reserving actuaries have limited possibilities to estimate such volatility apart from scaling from tractable models, which are based on other reserving methods. However, such scaling is technically difficult to justify cleanly and awkward to interact with. The challenge described in this editorial is therefore to come up with similar models like those of Mack or Merz-Wüthrich for the chain ladder, but applicable to Bornhuetter-Ferguson, mix Chain-Ladder and Bornhuetter-Ferguson, potentially Cape-Cod and Benktander-Hovinen — and their mixtures.

Keywords

One-year volatilitybootstrapping methodsMack modelChain-LadderBornhuetter-FergusonCape-CodBenktander-Hovinen
Type
Industry Discussion Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 44 , Issue 3 , September 2014 , pp. 495 - 499
Copyright
Copyright © ASTIN Bulletin 2014 

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