Extending the Chain Ladder Method for Actuarial Practice

• Applicants: Dr. Nataliya Chukhrova; Dr. Arne Johannssen
• Subject Area: Statistics and Econometrics ; Management and Marketing
• Term: since 2019
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 409030527

In this DFG research project it is planned to apply the Theory of Fuzzy Sets in Quantitative Risk Management, especially in Stochastic Claims Reserving. Stochastic Claims Reserving is a central field of Quantitative Risk Management within Actuarial Sciences, which deals with the calculation of adequate claims reserves using stochastic models. Since the claims reserves are often the largest share on the liability side of the balance sheet and thus a significant risk driver for insurance companies, adequate claims reserving is of vital importance for every non-life insurer. The Theory of Fuzzy Sets, on the other hand, serves to represent uncertainties and fuzziness, and has enjoyed renewed popularity in research in recent years, not least because of its diverse potential applications, including the fields of Machine Learning and Artificial Intelligence. The aim of this research project is to refine the calculation of the development factors in the most popular claims reserving method in actuarial practice, the Chain Ladder method, by incorporating expert knowledge and/or industry statistics. Such an extension of the Chain Ladder method to take into account concrete needs from actuarial practice to generalize/improve the most popular method in claims reserving will help to ensure that the key quantities of the Chain Ladder method (the development factors) are calculated on a much more plausible basis. Since the development factors directly and indirectly exert a major influence on the prediction of the outstanding loss liabilities and thus on the claims reserves of non-life insurance companies, the calculation of claims reserves will also be made more precise, since other key information will be incorporated into the calculations in addition to the claims data. This research project combines two of our main research interests: Stochastic Claims Reserving, especially with respect to the Chain Ladder method, and the Fuzzy Set Theory. As part of this project, we plan to publish two articles in top-tier actuarial journals to make the benefits of incorporating Fuzzy Set Theory accessible to actuarial practice.

• DFG Programme: Research Grants