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

Author

Listed:
  • Yixing Zhao

    (Sun Yat-sen University)

  • Rogemar Mamon

    (The University of Western Ontario
    University of the Philippines Visayas)

  • Heng Xiong

    (Wuhan University
    Wuhan University)

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.

Suggested Citation

  • Yixing Zhao & Rogemar Mamon & Heng Xiong, 2021. "Claim reserving for insurance contracts in line with the International Financial Reporting Standards 17: a new paid-incurred chain approach to risk adjustments," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-26, December.
    • Handle: RePEc:spr:fininn:v:7:y:2021:i:1:d:10.1186_s40854-021-00287-5
    DOI: 10.1186/s40854-021-00287-5
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    References listed on IDEAS

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