Stochastic Chain-Ladder Reserving with Modeled General Inflation

Massimo De Felice and Franco Moriconi ()
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Massimo De Felice: Department of Statistical Sciences, Sapienza University of Rome, 00185 Roma, Italy
Franco Moriconi: Department of Economics, University of Perugia, 06123 Perugia, Italy

Risks, 2023, vol. 11, issue 12, 1-31

Abstract: We consider two possible approaches to the problem of incorporating explicit general (i.e., economic) inflation in the non-life claims reserve estimates and the corresponding reserve SCR, defined—as in Solvency II—under the one-year view. What we call the actuarial approach provides a simplified solution to the problem, obtained under the assumption of deterministic interest rates and absence of inflation risk premia. The market approach seeks to eliminate these shortcomings by combining a stochastic claims reserving model with a stochastic market model for nominal and real interest rates. The problem is studied in details referring to the stochastic chain-ladder provided by the Over-dispersed Poisson model. The application of the two approaches is illustrated by a worked example based on market data.

Keywords: claims reserving; general inflation; claims inflation; stochastic chain-ladder; reserve risk; nominal interest rates; real interest rates (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
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