Application of a Vine Copula for Multi-Line Insurance Reserving

Himchan Jeong and Dipak Dey
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Himchan Jeong: Department of Statistics and Actuarial Science, Simon Fraser University, 8888 University Drive, Burnaby, BC V5A 1S6, Canada
Dipak Dey: Department of Statistics, University of Connecticut, 215 Glenbrook Rd. U-4120, Storrs, CT 06269-4120, USA

Risks, 2020, vol. 8, issue 4, 1-23

Abstract: This article introduces a novel use of the vine copula which captures dependence among multi-line claim triangles, especially when an insurance portfolio consists of more than two lines of business. First, we suggest a way to choose an optimal joint loss development model for multiple lines of business that considers marginal distribution, vine copula structure, and choice of family for each pair of copulas. The performance of the model is also demonstrated with Bayesian model diagnostics and out-of-sample validation measures. Finally, we provide an implication of the dependence modeling, which allows a company to analyze and establish the risk capital for whole portfolio.

Keywords: Bayesian inference; model selection; multi-line reserving; property and casualty insurance; vine copula (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:8:y:2020:i:4:p:111-:d:432602

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