Assessing inflation risk in non-life insurance

Alexander Bohnert, Nadine Gatzert and Andreas Kolb

Insurance: Mathematics and Economics, 2016, vol. 66, issue C, 86-96

Abstract: Inflation risk is of high relevance in non-life insurers’ long-tail business and can have a major impact on claims reserving. In this paper, we empirically study claims inflation with focus on automobile liability insurance based on a data set provided by a large German non-life insurance company. The aim is to obtain empirical insight regarding the drivers of claims inflation risk and its impact on reserving. Toward this end, we use stepwise multiple regression analysis to identify relevant drivers based on economic indices related to health costs and consumer prices, amongst others. We further study the impact of (implicitly and explicitly) predicting calendar year inflation effects on claims reserves using stochastic inflation models. Our results show that drivers for claims inflation can considerably vary for different lines of business and emphasize the importance of explicitly dealing with (stochastic) claims inflation when calculating reserves.

Keywords: Separation method; Claims inflation; Regression analysis; Simulation; Vasicek (search for similar items in EconPapers)
JEL-codes: C53 E31 G22 G32 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:66:y:2016:i:c:p:86-96

DOI: 10.1016/j.insmatheco.2015.11.003

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