Fitting Nonstationary Cox Processes: An Application to Fire Insurance Data

Hansjörg Albrecher, José Carlos Araujo-Acuna and Jan Beirlant

North American Actuarial Journal, 2021, vol. 25, issue 2, 135-162

Abstract: In insurance practice, claims often occur in clusters and their arrivals may depend on various external and time-dependent factors. In this article, we propose a statistical approach for modeling claim arrivals by considering clustered arrivals and non-stationarity simultaneously. To this end, we extend the Cox process methodology with Lévy subordinators presented in Selch and Scherer (2018) relaxing the stationarity of increments assumption. A particular special case of the proposed approach is a dynamic and flexible model of negative binomially distributed claim numbers with trends and seasonal variations of the parameters. For illustration purposes, we fit the model to a fire insurance portfolio and show that it allows the modeling of cluster occurrences in a seasonal pattern while preserving overdispersion, which is frequently observed in claim count data. We illustrate its use in forecasting and Value-at-Risk and expected shortfall computations of the aggregate insurance risk. Finally, we provide a multivariate extension of the model, where simultaneous cluster arrivals in different components are generated by a nonstationary common subordinator.

Date: 2021
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DOI: 10.1080/10920277.2019.1703752

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