Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency...
Transcript of Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency...
![Page 1: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/1.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Solvency II’ newspeak‘one year uncertainty for IBNR’
the boostrap approach
Arthur Charpentier1 & Laurent Devineau2
1 Universite Rennes 1 - CREM & Ecole Polytechnique, 2 Milliman
http ://blogperso.univ-rennes1.fr/arthur.charpentier/index.php/
Lyon Summer School, July 2010
1
![Page 2: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/2.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Agenda of the talk
• Solvency II : CP 71 and the one year horizon
• Solvency II : new way of looking at the ‘uncertainty’◦ From MSE to MSEP (MSE of prediction)◦ From MSEP to MSEPC (conditional MSEP)◦ CDR, claims development result
• From Mack (1993) to Merz & Wuthrich (2009)• Updating Poisson-ODP bootstrap technique
one year ultimate
China ladder Merz & Wuthrich (2008) Mack (1993)
GLM+boostrap x Hacheleister & Stanard (1975)
England & Verrall (1999)
2
![Page 3: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/3.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
‘one year horizon for the reserve risk’
3
![Page 4: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/4.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
‘one year horizon for the reserve risk’
4
![Page 5: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/5.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
‘one year horizon for the reserve risk’
5
![Page 6: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/6.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
‘one year horizon for the reserve risk’
6
![Page 7: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/7.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
‘one year horizon for the reserve risk’
7
![Page 8: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/8.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
‘one year horizon for the reserve risk’
8
![Page 9: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/9.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Standard models in IBNR models
• Chain Ladder Ci,j+1 = λj · Ci,j and Mack• Factor models Yi,j ∼ L(Ai, Bj) and GLM’s (ODP-bootstrap)• and the Bayesian approach
9
![Page 10: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/10.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Standard models in IBNR models
• Chain Ladder Ci,j+1 = λj · Ci,j and Mack• Factor models Yi,j = ϕ(Ai, Bj) and GLM’s (ODP-bootstrap)• expert opinion and the Bayesian approach
10
![Page 11: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/11.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Standard models in IBNR models
• Chain Ladder Ci,j+1 = λj · Ci,j and Mack• Factor models Yi,j = ϕ(Ai, Bj) and GLM’s (ODP-bootstrap)• expert opinion and the Bayesian approach
11
![Page 12: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/12.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Standard models in IBNR models
• Chain Ladder Ci,j+1 = λj · Ci,j and Mack• Factor models Yi,j = ϕ(Ai, Bj) and GLM’s (ODP-bootstrap)• expert opinion and the Bayesian approach
12
![Page 13: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/13.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Standard models in IBNR models
• Chain Ladder Ci,j+1 = λj · Ci,j and Mack• Factor models Yi,j = ϕ(Ai, Bj) and GLM’s (ODP-bootstrap)• expert opinion and the Bayesian approach
13
![Page 14: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/14.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Standard models in IBNR models
• Chain Ladder Ci,j+1 = λj · Ci,j and Mack• Factor models and GLM’s (ODP-bootstrap), E(Yi,j |F) = ϕ(Ai, Bj)• expert opinion and the Bayesian approach
14
![Page 15: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/15.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Standard models in IBNR models
• Chain Ladder and Mack (1993) E(Ci,j+1|F) = λj · Ci,j
• Factor models and GLM’s (ODP-bootstrap), E(Yi,j |F) = ϕ(Ai, Bj)• expert opinion and the Bayesian approach
15
![Page 16: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/16.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Notations for triangle type data
• Xi,j denotes incremental payments, with delay j, for claims occurred year i,• Ci,j denotes cumulated payments, with delay j, for claims occurred year i,Ci,j = Xi,0 +Xi,1 + · · ·+Xi,j ,
0 1 2 3 4 5
0 3209 1163 39 17 7 21
1 3367 1292 37 24 10
2 3871 1474 53 22
3 4239 1678 103
4 4929 1865
5 5217
et et
0 1 2 3 4 5
0 3209 4372 4411 4428 4435 4456
1 3367 4659 4696 4720 4730
2 3871 5345 5398 5420
3 4239 5917 6020
4 4929 6794
5 5217
• Ft denotes information available at time t, available at time t, based on thefirst k years, only
Ft = {(Ci,j), 0 ≤ i+ j ≤ t} = {(Xi,j), 0 ≤ i+ j ≤ t}
16
![Page 17: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/17.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Notations for triangle type data
• Xi,j denotes incremental payments, with delay j, for claims occurred year i,• Ci,j denotes cumulated payments, with delay j, for claims occurred year i,Ci,j = Xi,0 +Xi,1 + · · ·+Xi,j ,
0 1 2 3 4 5
0 3209 1163 39 17 7 21
1 3367 1292 37 24 10
2 3871 1474 53 22
3 4239 1678 103
4 4929 1865
5 5217
et et
0 1 2 3 4 5
0 3209 4372 4411 4428 4435 4456
1 3367 4659 4696 4720 4730
2 3871 5345 5398 5420
3 4239 5917 6020
4 4929 6794
5 5217
• Ftk denotes partial information available at time t, based on the first k years,
only
Ftk = {(Ci,j), 0 ≤ i+ j ≤ t, i ≤ k} = {(Xi,j), 0 ≤ i+ j ≤ t, i ≤ k}
17
![Page 18: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/18.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Chain Ladder estimation
0 1 2 3 4 5
0 3209 4372 4411 4428 4435 4456
1 3367 4659 4696 4720 4730
2 3871 5345 5398 5420
3 4239 5917 6020
4 4929 6794
5 5217
et et
0 1 2 3 4 5
0 3209 4372 4411 4428 4435 4456
1 3367 4659 4696 4720 4730 4752.4
2 3871 5345 5398 5420 5430.1 5455.8
3 4239 5917 6020 6046.15 6057.4 6086.1
4 4929 6794 6871.7 6901.5 6914.3 6947.1
5 5217 7204.3 7286.7 7318.3 7331.9 7366.7
with the following link ratios
0 1 2 3 4 n
λj 1,38093 1,01143 1,00434 1,00186 1,00474 1,0000
One the triangle has been completed, we obtain the amount of reserves, withrespectively 22, 36, 66, 153 and 2150 per accident year, i.e. the total is 2427.
18
![Page 19: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/19.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
How to quantify uncertainty in Solvecny II
In Solvency II, uncertainty is quantified as a dispersion measure (variance orquantile) of changes in prediction, with one year of additional information.
The best estimate at time t is Rt = E(C∞|Ft) while it become, at time t+ 1Rt+1 = E(C∞|Ft+1).
The goal is to estimate
E([E(C∞|Ft+1)− E(C∞|Ft)]2|Ft
)
19
![Page 20: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/20.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Quantifying uncertainty in odds/tails games
In statistics, the mean squared error is a standard measure to quantify theuncertainty of an estimator, i.e.
mse(θ) = E([θ − θ
]2)In order to formalize the prediction process in claims reserving consider thefollowing simpler case.
Let {x1, · · · , xn} denote an i.i.d. B(p) sample. We want to predictSh = Xn+1 + · · ·+Xn+h. Let nSh = ψ(Xn+1, · · · , Xn+h) = h · pn denote thenatural predictor for Sh, at time n.
Since Sh is a random variable (θ was a constant) define
mse(nSh) = E([
nSh − E(Sh)]2)
20
![Page 21: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/21.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
and
msep(nSh) = E([
nSh − Sh
]2)Note that
msep(nSh) = E([
nSh − E(Sh)]2)
+ E(
[E(Sh)− Sh]2)
= mse(nSh) + Var(Sh)
where the first term is a process error and the second term a estimation error.
It is also possible to calculate the information given the information available attime n, i.e. a conditional msep,
msepcn(nSh) = E([
nSh − Sh
]2|Fn
)denoted E(msepcn(nSh)) = msep(nSh).
21
![Page 22: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/22.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
What are we looking for ?
In Solvency II requirements,
CDRn+1 = [nSh]− [xn+1 + n+1Sh−1]
This defines a martingale since
E(CDRn+1|Fn) = 0
and what is required is to estimate
msepcn(CDRn+1)
i.e. find msepcn(CDRn+1).
22
![Page 23: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/23.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
What are we looking for ?
23
![Page 24: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/24.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
What are we looking for ?
24
![Page 25: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/25.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
What are we looking for ?
25
![Page 26: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/26.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Having an estimator of the uncertainty
Let us continue with our repeated tails/heads game. Let pn = [x1 + · · ·+ xn]/n,so that
Var(pn) =p(1− p)
n
thus
mse(nSh) = mse(h · pn) = h2 ·mse(pn) =h2
np(1− p),
or
msep(nSh) = nhp(1− p) +h2
np(1− p) =
nh+ h2
np(1− p)
i.e.
msep(nSh) =h(n+ h)
np(1− p).
26
![Page 27: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/27.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Having an estimator of the uncertainty
Thus, this quantity can be estimated as
msep(nSh) =h(n+ h)
npn(1− pn).
while the mse estimator was
mse(nSh) =h2
npn(1− pn)
Looking at the msepc at time n, we have
msepcn(nSh) = Var(S|Fn) + mse(nSh|Fn)
27
![Page 28: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/28.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Having an estimator of the uncertainty
Looking at the msepc at time n, we have
msepcn(nSh) = Var(S|Fn) + mse(nSh|Fn)
where
Var(S|Fn) = Var(Xn+1 + · · ·+Xn+h|x1, · · · , xn)
= Var(Xn+1 + · · ·+Xn+h) = hp(1− p)
and
mse(nSh|Fn) =(E(Sh|Fn)− nSh
)2
which can be written
msepcn(nSh) = hp(1− p) + h2 (p− pn)2
28
![Page 29: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/29.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Having an estimator of the uncertainty
This quantity can be estimated as
msepcn(nSh) = hpn(1− pn) + 0.
i.e. we keep only the variance process term.
Mack (1993) suggested to use partial information to estimate the second term.Define D = {Xi, i ≤ n} and Bk = {Xi, i ≤ n, i ≤ k} with k ≤ n. Define
msepckn(nSh) = hpn(1− pn) + h2 (pn − pk)2
29
![Page 30: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/30.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
The one year horizon uncertainty
In Solvency II, insurance companies are requiered to estimate the msepc, at timen, of the difference between Xn+1 + n+1S(h−1) and nS(h).
Those two quantities estimate the same things, at different dates,• nS(h) is a predictor for Sh at time n• Xn+1 + n+1S(h−1) is a predictor for Sh at time n+ 1,If we admit that we are looking for the following quantity (as in Merz &Wuthrich (2008))
msepcn = E(
[Xn+1 + (h− 1) · pn+1 − h · pn]2 |Fn
)i.e.
msepcn = E
([n+ h
n+ 1Xn+1 +
n− hn+ 1
pn
]2|Fn
)
msepcn =(n+ h)2
(n+ 1)2p+
(n+ h)(n− h)(n+ 1)2
p · pn +(n− h)2
(n+ 1)2p2
n
30
![Page 31: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/31.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Updating an estimator, an econometric introduction
If βn =(X ′nXn
)−1X ′nY n denotes the OLS estimate, if a new observation
becomes available (yn+1, xn+1), then
βn+1 = βn +
(X ′nXn
)−1xn+1
1 + x′n+1
(X ′nXn
)−1xn+1
(yn+1 − x′n+1βn
)or
βn+1 = βn +(X ′n+1Xn+1
)−1xn+1
(yn+1 − x′n+1βn
)The CDR for a new observation X = x is then
CDRn = x′([βn+1 − βn]
i.e.CDRn = x′
(X ′n+1Xn+1
)−1xn+1
(yn+1 − x′n+1β
)
31
![Page 32: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/32.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Mack’s ultimate uncertainty
As shown in Mack (1993),
msep(Ri) = C2i,∞
n−1∑j=n−i+1
σ2j
λ2j
(1
Ci,j
+1
Sj
)
where Sj is the sum of cumulated payments on accident years before year n− j,
Sj =n−j∑i=1
Ci,j .
Finally, it is possible also to derive an estimator for the aggregate msep (allaccident years)
msep(R) =∑
msep(Ri) + 2C2i,∞
n∑k=i+1
Ck,n
n−1∑j=n−i+1
σ2j
λ2jSj
32
![Page 33: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/33.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Mack’s ultimate uncertainty
> library(ChainLadder)
> source("http://perso.univ-rennes1.fr/arthur.charpentier/bases.R")
> MackChainLadder(PAID)
MackChainLadder(Triangle = PAID)
Latest Dev.To.Date Ultimate IBNR Mack.S.E CV(IBNR)
1 4,456 1.000 4,456 0.0 0.000 NaN
2 4,730 0.995 4,752 22.4 0.639 0.0285
3 5,420 0.993 5,456 35.8 2.503 0.0699
4 6,020 0.989 6,086 66.1 5.046 0.0764
5 6,794 0.978 6,947 153.1 31.332 0.2047
6 5,217 0.708 7,367 2,149.7 68.449 0.0318
Totals
Latest: 32,637.00
Ultimate: 35,063.99
IBNR: 2,426.99
Mack S.E.: 79.30
CV(IBNR): 0.03
i.e. msepc6(R) = 79.30.
33
![Page 34: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/34.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Merz & Wuthrich’s one year uncertainty
Based on some martingale properties, one can prove that
E(CDRi(n+ 1)|Fn) = 0
(neither boni nor mali can be expected).
Further, it can be proved that (CDRi(n+ 1))n’s are non correlated, and thus
msepcn(CDRi(n+ 1)) = Var(CDRi(n+ 1)|Fn) = E(CDRi(n+ 1)2|Fn)
Merz & Wuthrich (2008) proved that the one year horizon error can be estimatedwith a formula similar to Mack (1993)
msepcn(CDRi(n+ 1)) = C2i,∞
(Γi,n + ∆i,n
)where
∆i,n =σ2
n−i+1
λ2n−i+1S
n+1n−i+1
+n−1∑
j=n−i+2
(Cn−j+1,j
Sn+1j
)2σ2
j
λ2jS
nj
34
![Page 35: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/35.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
and
Γi,n =
(1 +
σ2n−i+1
λ2n−i+1Ci,n−i+1
)n−1∏
j=n−i+2
(1 +
σ2j
λ2j [Sn+1
j ]2Cn−j+1,j
)− 1
Merz & Wuthrich (2008) mentioned that this term can be approximated as
Γi,n ≈σ2
n−i+1
λ2n−i+1Ci,n−i+1
+n−1∑
j=n−i+2
(Cn−j+1,j
Sn+1j
)2σ2
j
λ2jCn−j+1,j
using a simple development of∏
(1 + ui) ≈ 1 +∑ui, but which is valid only if ui
is extremely small, i.e.σ2
j
λ2j
<< Cn−j+1,j
35
![Page 36: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/36.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Implementing Merz& Wuthrich’s formula
> source("http://perso.univ-rennes1.fr/arthur.charpentier/merz-wuthrich-triangle.R")
> MSEP_Mack_MW(PAID,0)
MSEP Mack MSEP observable approche MSEP observable exacte
1 0.0000000 0.000000 0.000000
2 0.6393379 1.424131 1.315292
3 2.5025153 2.543508 2.543508
4 5.0459004 4.476698 4.476698
5 31.3319292 30.915407 30.915407
6 68.4489667 60.832875 60.832898
7 79.2954414 72.574735 72.572700
36
![Page 37: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/37.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Implementing Merz& Wuthrich’s formula
Could Merz & Wuthrich’s formula end up with more uncertainty than Mack’s
> Triangle = read.table("http://perso.univ-rennes1.fr/arthur.charpentier/
+ GAV-triangle.csv",sep=";")/1000000
> MSEP_Mack_MW(Triangle,0)
MSEP Mack MSEP observable approche MSEP observable exacte
1 0.00000000 0.0000000 0.0000000
2 0.01245974 0.1296922 0.1526059
3 0.20943114 0.2141365 0.2144196
4 0.25800338 0.1980723 0.1987730
5 3.05529740 3.0484895 3.0655251
6 58.42939329 57.0561173 67.3757940
7 58.66964613 57.3015524 67.5861066
37
![Page 38: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/38.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
GLM log-Poisson in triangles
Recall that we while to estimate
E([R− R]2) =[E(R)− E(R)
]2+ Var(R− R) ≈ Var(R) + Var(R)
Classically, consider a log-Poisson model, were incremental payments satisfy
Xi,j ∼ P(µi,j) where µi,j = exp[ηi,j ] = exp[γ + αi + βj ]
Using the delta method, we get that asymptotically
Var(Xi,j) = Var(µi,j) ≈∣∣∣∣∂µi,j
∂ηi,j
∣∣∣∣2 Var(ηi,j)
where, since we consider a log link,
∂µi,j
∂ηi,j= µi,j
38
![Page 39: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/39.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
i.e., with an ODP distribution (i.e. Var(Xi,j = ϕE(Xi,j),
E(
[Xi,j − Xi,j ]2)≈ ϕ · µi,j + µ2
i,j · Var(ηi,j)
andCov(Xi,j , Xk,l) ≈ µi,j · µk,l · Cov (ηi,j , ηk,l)
Thus, since the overall amount of reserves satisfies
E(
[R− R]2)≈
∑i+j−1>n
ϕ · µi,j + µ′Var(η)µ.
> an <- 6; ligne = rep(1:an, each=an); colonne = rep(1:an, an)
> passe = (ligne + colonne - 1)<=an; np = sum(passe)
> futur = (ligne + colonne - 1)> an; nf = sum(passe)
> INC=PAID
> INC[,2:6]=PAID[,2:6]-PAID[,1:5]
> Y = as.vector(INC)
> lig = as.factor(ligne); col = as.factor(colonne)
> CL <- glm(Y~lig+col, family=quasipoisson)
> Y2=Y; Y2[is.na(Y)]=.001
39
![Page 40: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/40.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
> CL2 <- glm(Y2~lig+col, family=quasipoisson)
> YP = predict(CL)
> p = 2*6-1;
> phi.P = sum(residuals(CL,"pearson")^2)/(np-p)
> Sig = vcov(CL)
> X = model.matrix(CL2)
> Cov.eta = X%*%Sig%*%t(X)
> mu.hat = exp(predict(CL,newdata=data.frame(lig,col)))*futur
> pe2 = phi.P * sum(mu.hat) + t(mu.hat) %*% Cov.eta %*% mu.hat
> cat("Total reserve =", sum(mu.hat), "prediction error =", sqrt(pe2),"\n")
Total reserve = 2426.985 prediction error = 131.7726
i.e. E(R−R) = 131.77.
40
![Page 41: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/41.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and unccertainty
Bootstrap is now a standard nonparametric technique used to quantifyuncertainty.
In the linear model, Y (x) = E(Y |X = x) = x′β while Y (x) = E(Y |X = x) + ε,and the uncertainty is related to
Var(Y (x)) = Var(x′β) = x′Var(β)x
Var(Y (x)) = Var(x′β + ε) ≈ Var(Y (x)) + σ2
To derive confidence interval or quantiles of Y (x) or Y (x) we need furtherassuming, like a distribution for residuals ε
Instead of giving an analytic formula, monte carlo simulations can be used. Theidea is to generate samples
{(X?i , Y
?i ), i = 1, ..., n} or {(X?
i , Y (X?i ) + ε?
i ), i = 1, ..., n}
41
![Page 42: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/42.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and unccertainty
●
●
●
●
●
●
●
●
●
●
●●
●
●
0 2 4 6 8 10
05
10
●
42
![Page 43: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/43.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and unccertainty
●
●
●
●
●
●
●
●
●
●
●●
●
●
0 2 4 6 8 10
05
10
●
●
●
●
●●
●
●
0 2 4 6 8 10
05
10
43
![Page 44: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/44.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and unccertainty
●
●
●
●
●
●
●
0 2 4 6 8 10
05
10
●
●
●
●●
●
●
●
44
![Page 45: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/45.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and unccertainty
●
●
●
●
●
●
●
0 2 4 6 8 10
05
10
●
●
●
●
●●
●
●
0 2 4 6 8 10
05
10
● ●
●
●
●
●
●
45
![Page 46: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/46.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and unccertainty
●
●
●
●
●
●
0 2 4 6 8 10
05
10
●
●
●
●
●●
●
0 2 4 6 8 10
05
10
46
![Page 47: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/47.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and unccertainty
● ●
●
●
●
●
0 2 4 6 8 10
05
10
●
● ●
●
●
●
●
0 2 4 6 8 10
05
10
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
● ●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
● ●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●●
●●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
47
![Page 48: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/48.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstraping errors ?
Parametric generation : if Z has distribution F (·), then F−1(Random) israndomdly distributed according to F (·).
Nonparametric generation : we do not know F (·), it is still possible to estimate it
Fn(z) =1n
n∑i=1
1(Xi ≤ x)
Then
F−1n (u) = Xi:n where
i
n≤ u < i+ 1
n
where Xi:n denotes the order statistics,
X1:n ≤ X2:n ≤ · · · ≤ Xn−1:n ≤ Xn:n
Thus,
F−1n (Random) = Xi with probability
1n
for all i.
48
![Page 49: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/49.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Parametric versus nonparametric random generation
−2.0 −1.5 −1.0 −0.5 0.0 0.5 1.0
0.0
0.2
0.4
0.6
0.8
1.0
49
![Page 50: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/50.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Parametric versus nonparametric random generation
−2.0 −1.5 −1.0 −0.5 0.0 0.5 1.0
0.0
0.2
0.4
0.6
0.8
1.0
●
●
50
![Page 51: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/51.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Parametric versus nonparametric random generation
−2.0 −1.5 −1.0 −0.5 0.0 0.5 1.0
0.0
0.2
0.4
0.6
0.8
1.0
●
●
51
![Page 52: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/52.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and ultimate uncertainty
From triangle of incremental payments, (Yi,j) assume that
Yi,j ∼ P(Yi,j) where Yi,j = exp(Li + Cj)
1. Estimate parameters Li and Cj , define Pearson’s (pseudo) residuals
εi,j =Yi,j − Yi,j√
Yi,j
2. Generate pseudo triangles on the past, {i+ j ≤ t}
Y ?i,j = Yi,j + ε?
i,j
√Yi,j
3. (re)Estimate parameters L?i and C?
j , and derive expected payments for thefuture, Y ?
i,j .
R =∑
i+j>t
Y ?i,j
52
![Page 53: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/53.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
is the best estimate.
4. Generate a scenario for future payments, Y ?i,j e.g. from a Poisson distribution
P(Y ?i,j)
R =∑
i+j>t
Y ?i,j
One needs to repeat steps 2-4 several times to derive a distribution for R.
53
![Page 54: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/54.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and GLM log-Poisson in triangles
●
●
●
0 2 4 6 8 10
020
0040
0060
0080
00
●
●
●
●
●
●
●
54
![Page 55: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/55.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and GLM log-Poisson in triangles
●
●
●
0 2 4 6 8 10
020
0040
0060
0080
00
●
●
●
●
●
●
●
55
![Page 56: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/56.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and GLM log-Poisson in triangles
●
●
●
0 2 4 6 8 10
020
0040
0060
0080
00
●
●
●
●
●
●
●●
56
![Page 57: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/57.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and GLM log-Poisson in triangles
●
●
●
0 2 4 6 8 10
020
0040
0060
0080
00
●
●
●
●
●
●
●●
57
![Page 58: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/58.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and GLM log-Poisson in triangles
If we repeat it 50,000 times, we obtain the following distribution for the mse.
0 50 100 150 200
0.00
00.
002
0.00
40.
006
0.00
80.
010
0.01
2
msep of overall reserves
Den
sity
MACK GLM
58
![Page 59: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/59.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and one year uncertainty
2. Generate pseudo triangles on the past and next year {i+ j ≤ t+ 1}
Y ?i,j = Yi,j + ε?
i,j
√Yi,j
3. Estimate parameters L?i and C?
j , on the past, {i+ j ≤ t}, and derive expectedpayments for the future, Y ?
i,j .
Rt =∑
i+j>t
Yi,j
4. Estimate parameters L?i and C?
j , on the past and next year, {i+ j ≤ t+ 1},and derive expected payments for the future, Y ?
i,j .
Rt+1 =∑
i+j>t
Yi,j
5. Calculate CDR as CDR=Rt+1 − Rt.
59
![Page 60: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/60.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Ultimate versus one year uncertainty
ultimate (R− E(R)) versus one year uncertainty,
−200 −100 0 100 200
0.00
00.
002
0.00
40.
006
0.00
80.
010
60
![Page 61: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/61.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and GLM log-Poisson in triangles
●
●
●
0 2 4 6 8 10
020
0040
0060
0080
00
●
●
●
●
●
●
●●
61
![Page 62: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/62.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Bootstrap and GLM log-Poisson in triangles
●
●
●
0 2 4 6 8 10
020
0040
0060
0080
00
●
●
●
●
●
●
●●
62
![Page 63: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/63.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Why a Poisson model for IBNR?
Hachemeister & Stanard (1975), Kremer (1985) and Mack(1991) proved thatwith a log-Poisson regression model on incremental payments, the sum ofpredicted payments corresponds to the Chain Ladder estimator.
Recall that Yi,j ∼ P(Li + Cj), i.e.• we consider two factors, line Li and column Cj
• we assume that E(Yi,j |F) = exp[Li + Cj ] (since the link function is log)• we assume further that Var(Yi,j |F) = exp[Li + Cj ] = E(Yi,j (since we consider
a Poisson regression)
63
![Page 64: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/64.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Why a Poisson model for IBNR?
Adding additional factors is complex (too many parameters, and need to forecasta calendar factor, if any).
Changing the link function is not usual, and having a multiplicative model yieldto natural interpretations,
Why not changing the distribution (i.e. the variance function) ?
=⇒ consider Tweedie models.
64
![Page 65: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/65.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Tweedie models
Assume here that the variance function is V ar(Y ) = ϕE(Y )p for some p ∈ [0, 1].
p = 1 is obtained with a Poisson model, p = 2 with a Gamma model.
If p ∈ (1, 2), we obtain a compound Poisson distribution.
65
![Page 66: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/66.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Best estimate and Tweedie parameter
1.0 1.2 1.4 1.6 1.8 2.0
−12
00−
1000
−80
0−
600
−40
0−
200
Tweedie power parameter
log
likel
ihoo
d
66
![Page 67: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/67.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Best estimate and Tweedie parameter
1.0 1.2 1.4 1.6 1.8 2.0
−20
0−
190
−18
0−
170
−16
0−
150
−14
0
Tweedie power parameter
log
likel
ihoo
d
67
![Page 68: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/68.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Best estimate and Tweedie parameter
1.0 1.2 1.4 1.6 1.8 2.0
2430
2435
2440
Tweedie power parameter
Am
ount
of r
eser
ves
68
![Page 69: Solvency II' newspeak - GitHub Pages · Arthur CHARPENTIER, IBNR and one-year uncertainty Solvency II’ newspeak ‘one year uncertainty for IBNR’ the boostrap approach Arthur](https://reader030.fdocuments.in/reader030/viewer/2022041100/5ed72bc5c30795314c1753f9/html5/thumbnails/69.jpg)
Arthur CHARPENTIER, IBNR and one-year uncertainty
Best estimate and Tweedie parameter
Best estimate amount of reserve with Tweedie power p, with the 95% quantileand the 99.5% quantile
1.0 1.2 1.4 1.6 1.8 2.0
2400
2450
2500
2550
2600
2650
2700
Tweedie power
Res
erve
s
69