A stochastic model to determine IBNR reserves

Document description

This paper describes a stochastic model to determine IBNR-reserves based on a Compound Poisson distribution. The number of insureds per accident year and the mean and second moment of payments by accident, reporting and development year are used as input. The claim frequency is estimated by accident and reporting year and the equality of the claim frequencies is tested using a x2 goodness-of-fit test. Mean and second moment of the total claim amount are estimated as the sum of payments in development years starting with the reporting year. After that, the model is applied to a fictitious dataset and the arising difficulties are discussed. It is shown that without testing the equality of claim frequencies, the calculated reserve may lead to an underestimation of future liabilities.