Calculating Loss Reserves in a Multistate Model for Income Insurance

摘要: This article proposes a method to estimate sufficient loss reserve for insurance companies, such that they can cover income claims filed by self-employed workers. The first step involves multistate mixed proportional hazards (MPH) approach model workers’ disability durations, together with changes in their health conditions during incapacity. Combining the MPH Monte Carlo simulations reveals risk-based estimates of reserves claim portfolios. To assess quality estimated reserves, this study quantifies amount process and parameter uncertainty involved performs an out-of-sample prediction exercise.