Claim reserving for insurance contracts in line with the International Financial Reporting Standards 17: a new paid-incurred chain approach to risk adjustments

Abstract

Abstract This study considers the risk management of insurance policies in line with the implementation of the new International Financial Reporting Standards 17. It applies the paid-incurred chain method to model the future unpaid losses by combining the information channels of both the incurred claims and paid losses. We propose the recovery of the empirical distribution of the outstanding claims liabilities associated with a group of contracts via moment-based density approximation. We determine the risk measures and adjustments that are compliant with the new standard using the Monte–Carlo simulation method and approximated distributions. The historical data on the aggregate Ontario automobile insurance claims over a 15-year period are analyzed to examine the appropriateness and accuracy of our approach.

Keywords

• Incurred claims
• Paid losses
• Paid-incurred chain model
• Moment-based density approximation
• Risk measures
• International Financial Reporting Standards 17