Sarmanov Family of Bivariate Distributions for Multivariate Loss Reserving Analysis

Anas Abdallah, Jean-Philippe Boucher, Hélène Cossette and Julien Trufin

North American Actuarial Journal, 2016, vol. 20, issue 2, 184-200

Abstract: The correlation among multiple lines of business plays a critical role in aggregating claims and thus determining loss reserves for an insurance portfolio. We show that the Sarmanov family of bivariate distributions is a convenient choice to capture the dependencies introduced by various sources, including the common calendar year, accident year, and development period effects. The density of the bivariate Sarmanov distributions with different marginals can be expressed as a linear combination of products of independent marginal densities. This pseudo-conjugate property greatly reduces the complexity of posterior computations. In a case study, we analyze an insurance portfolio of personal and commercial auto lines from a major U.S. property-casualty insurer.

Date: 2016
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DOI: 10.1080/10920277.2016.1161525

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