A stochastic approach in determining claims reserve in general insurance
Muthee, Samuel K
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This project illustrates the use of stochastic techniques in determining claims reserve in general insurance. The main objective being to obtain a ‘best estimate’ of the outstanding reserves and its variability with more emphasis being made on the application of stochastic techniques. An in-depth application of the Mack’s model and the Negative binomial model has been considered. The application is in two dimensions; firstly, a distribution free method is considered and secondly, an assumption of the underlying distribution is made. The analysed data demonstrate that despite applying models that give reliable results, the integrity of the data should be guaranteed to give realistic results. In conclusion, stochastic techniques should be adopted because they allow the reserving actuary to determine the range within which he expects payments to fall with a certain level of confidence.
University of Nairobi
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