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Methodological analysis demonstrates stochastic claim reserving models using run-off data in general insurance, suggesting improved prediction by incorporating underlying error structures.
The paper addresses the problem of estimating future claim payments from the ‘run-off’ of past claim payments. A model of the claim payment process is postulated. Results from risk theory are applied to give a model for the incremental paid claims data by development period. A fitting method is developed which takes account of the error structure of the data implied by the underlying model of the claim payment process. The application of a similar method to incremental incurred data is considered. A numerical example is given.
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Thomas Wright (1990) studied this question.
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