Prediction error of the future claims component of premium liabilities under the loss ratio approach

Research output: Contribution to journalArticlepeer-review

Abstract

In this paper we construct a stochastic model and derive approximation formulae to estimate the standard error of prediction under the loss ratio approach of assessing premium liabilities. We focus on the future claims component of premium liabilities and examine the weighted and simple average loss ratio estimators. The resulting mean square error of prediction contains the process error component and the estimation error component, in which the former refers to future claims variability while the latter refers to the uncertainty in parameter estimation. We illustrate the application of our model to public liability data and simulated data.
Original languageEnglish
Pages (from-to)155-169
Number of pages15
JournalVariance
Volume4
Issue number2
Publication statusPublished - 2010
Externally publishedYes

Keywords

  • Premium liabilities
  • loss ratio
  • standard error of prediction
  • mean square error of prediction

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