Stochastic claims inflation in IBNR

Document description

This paper deals with loss reserving under inclusion of stochastic claims inflation, a topic that is of current interest. Note that recently a new paper on it was presented at the international Astin colloquium at Cairns. In the following it is basically assumed that the discounted claims increase follows an autoregressive model of ARCH-type and that the stochastic yearly interest intensity follows a classical autoregressive model. A procedure to estimate adequately the stochastic discounting factors is deduced. This is combined with the link-ratio technique and the classical forecasting procedure for autoregressive processes, giving a new stochastic loss reserving technique. The whole method is perfect and bandy. Its practicability is demonstrated in an example.