Determining the most suitable method of IBNR reserve estimation in the event of varying development patterns.

Abstract

In general insurance reserving, it is assumed in many cases that the losses in each accident year develop the same way. This makes the chain ladder method in general a good method to estimate general insurance claims liabilities. But what if the runoff patterns in each accident year were different? Which method is best to use to calculate general insurance reserves in such a case? This research paper seeks to answer the question of which method is best suited to estimate general insurance reserves when the runoff pattern in each accident year is different. Claims data was simulated using various constraints that restricted the claims to various distributions. Future claims development was also simulated. The claims reserve estimates using various methods of reserve estimation were then calculated. The results were then obtained as to which method is best suited to calculate claims reserves for a general insurer in different scenarios of varying development pattems. The results of this paper will hopefully provide a new insight of how to calculate claims reserves for a general insurer in the event that development pattems differ in each accident year.