Bootstrap method for calculating technical provisions for claims

Abstract

Proper risk management is one of the main objectives in the insurance companies, the good assessment of uncertainty is one of the keys to success in this business sector, therefore, covers the object of our study. The key to managing uncertainty is to foresee the possible claims and thus estimate the technical provisions to set up by the company for the payment of these. The European directive Solvency II, which came into force in 2016, substantially modified the methodology to be used for the estimation of technical provisions used previously. This regulation establishes a better assessment of the risk to meet payments for claims without having problems of low liquidity or insolvency. Adapting ourselves to this norm, we proceed to estimate technical provisions through the Chain Ladder method implemented by the triangle format, which adapts to the directive and takes into account the behaviour of the payments for claims in different years. To reduce uncertainty in our estimates, we use the Bootstrap method which we will determine the reliability of the data estimating the error. Using the data obtained from an insurance company in its area of cars, we carry out hypothesis to determine the reliability of the Chain Ladder with Bootstrap estimation method.

Keywords

• Technical provision
• risk
• Solvency II
• Chain Ladder
• Bootstrap