Giuseppe Melisi

Run-Off Error in the Outstanding Claims Reserves Evaluation

The variability of claim costs represents an important risk component, which should be taken into account while implementing the internal models for solvency evaluation of an insurance undertaking. This component can generate differences between future payments for claims and the provisions set aside for the same claims (run-off error). If the liability concerning the claims reserve is evaluated using synthetic methods, than the run-off error depends on the statistical method adopted. This work focuses on measuring the run-off error with reference to claims reserves evaluation methods applied to simulated run-off matrices for the claims-settlement development. The results from the numerical implementations provide us with useful insights for a rational selection of the statistical-actuarial method for the claims reserve evaluation on an integrated risk management framework.