Dependence between loss run-off triangles based on Copulas

Abstract

Loss reserving plays a central role in property and casualty insurance, and the current methodologies estimate reserves based on reported loss triangles, either for a single business line or aggregations of multiple dependent lines. However, for more efficient estimation of loss reserving, dependence between the observable losses for each line of business should be considered and a copula is a great tool for estimating the reserves, which have dependence structure. After modifying the reported loss triangle with the copula-based model with Korean data, there is significant gap between original estimated reserves and newly estimated reserves. It shows that the dependence between each single line should not be neglected and need more research applying dependence to estimate reserves much well and more suitable to our Korean nonlife insurances.