mCube: Multinomial Micro-level reserving Model

TL;DR

This paper introduces mCube, a multinomial multi-state micro-level reserving model that effectively estimates reserves for insurance claims by modeling claim timing and payments, demonstrated on real bodily injury data.

Contribution

The paper develops a unified multinomial framework for claim timing and payments, enhancing micro-level reserving accuracy over existing models.

Findings

Model accurately estimates reserves centered around true values.

Demonstrates superior performance on real insurance data.

Effectively models both IBNR and RBNS claims.

Abstract

This paper presents a multinomial multi-state micro-level reserving model, denoted mCube. We propose a unified framework for modelling the time and the payment process for IBNR and RBNS claims and for modeling IBNR claim counts. We use multinomial distributions for the time process and spliced mixture models for the payment process. We illustrate the excellent performance of the proposed model on a real data set of a major insurance company consisting of bodily injury claims. It is shown that the proposed model produces a best estimate distribution that is centered around the true reserve.