Prediction of outstanding payments in a Poisson cluster model

Anders Jessen, Thomas Mikosch and Gennady Samorodnitsky

Scandinavian Actuarial Journal, 2011, vol. 2011, issue 3, 214-237

Abstract: We consider a simple Poisson cluster model for the payment numbers and the corresponding total payments for insurance claims arriving in a given year. Due to the Poisson structure one can give reasonably explicit expressions for the prediction of the payment numbers and total payments in future periods given the past observations of the payment numbers. One can also derive reasonably explicit expressions for the corresponding prediction errors. In the (a, b) class of Panjer's claim size distributions, these expressions can be evaluated by simple recursive algorithms. We study the conditions under which the predictions are asymptotically linear as the number of past payments becomes large. We also demonstrate that, in other regimes, the prediction may be far from linear. For example, a staircase-like pattern may arise as well. We illustrate how the theory works on real-life data, also in comparison with the chain ladder method.

Date: 2011
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DOI: 10.1080/03461238.2010.481080

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