A Note on the Generalized Cape Cod Reserving Method

TL;DR

This paper derives an analytical formula for the mean squared error of prediction for the generalized Cape Cod claims reserving method, addressing a gap in its stochastic modeling.

Contribution

It extends the generalized Cape Cod method by providing a stochastic framework with an explicit MSEP formula, enhancing claims reserving analysis.

Findings

Derived an analytical MSEP formula for GCC.

Bridged the gap by stochastic extension of GCC.

Improves understanding of GCC's prediction uncertainty.

Abstract

Claims reserving is one of the most important actuarial tasks in non-life insurance modeling. There are several popular methods to perform claims reserving such as the chain-ladder (CL), the Bornhuetter--Ferguson (BF) or the generalized Cape Cod (GCC) methods. These methods have originally been introduced as deterministic algorithms, and only in a later step, they have been lifted to stochastic models allowing for analyzing claims prediction uncertainty. This holds true for the CL and the BF methods, but not for the GCC method. The purpose of this article is to close this gap and derive an analytical formula for the mean squared error of prediction (MSEP) of the GCC method.