Non-Life Insurance: Reserving

In this chapter, the reader can learn the concept of an insurance claim. Starting from this notion the run-off triangle is explained, i.e. the scheme representing claims that underlies the estimation of reserve amounts. The following paragraphs present reserve valuation methodologies, distinguishing between deterministic and probabilistic or stochastic methods. Deterministic methods are based on forecasting the value of the claims reserve through a projection into the future of expected costs, and using assumptions inferred from time series. In the course of the discussion, among the most important ones are presented: grossing up, chain ladder method and Fisher Lange method. In addition, the main outlines of Taylor’s separation method and the method of Bornhuetter and Ferguson are described. The stochastic methods are based on a probabilistic distribution of results. These include the Mack method, GLM models and bootstrapping. In the end, the evaluation principles for premium technical reserve are explained.