Application of Copula reserving method in property and casualty insurance.

Abstract

One of the most important tasks that Property and Casualty insurers face is estimating the amount of outstanding claims. Many methods can be used to accomplish this, including the commonly used traditional Chain Ladder method. However, the Chain Ladder method disregards the dependencies that exist between different lines of business. In this project, we use a Copula Regression model to estimate the outstanding claim amounts of the Property and Casualty lines of an established insurance company in Singapore. The estimates obtained using the copula method is shown to be comparably closer to the true actual values of claims that were paid out when compared to those obtained using the Chain Ladder method and the modified Chain Ladder method which is used in practice by the insurance company in Singapore. This finding lends weight to the proposition that the copula method of modelling the dependency structure is more accurate and able to produce better estimates of outstanding claims amount.