Modeling Mortgage Insurance as a Multistate Process

This paper covers experiences in modeling mortgage insurance claims. In Section 2, mortgage insurance claims are considered an absorbing state in a Markov chain that involves transitions between the states of healthy, in arrears, property in possession, property sold, loan discharged, and claim. Section 3 considers the representation of this process by a cascade of five frequency generalized linear models (GLMs) and a further GLM for claim size. These models are applied to the forecast of technical liabilities in Section 4 and the estimation of the associated forecast error in Section 5.