Projecting loss reserves using tail factor development method a case study of State Insurance Company (motor insurance)

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March, 2016
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In many loss reserve analyses, especially those involving long-tail casualty lines, the loss development triangle may end before all the claims are settled and before the final costs of any year are known. That is, in loss reserving we implicitly assume that there are no claims after the oldest origin year is fully developed. However, it is not appropriate to assume that the oldest origin year is fully settled. This is because it is possible to have incurred but not reported claims after the oldest origin year is fully settled.The study was conducted to project future claims after the run-off triangle is fully run off. Claims data was collected from the State Insurance Company (SIC) Limited motor insurance for a period of six(6) years. The R-software and the spreadsheet were used to analysis claims data using the chain ladder and tail factor techniques. The study revealed that the motor insurance department of SIC would pay extra 3% of claims after estimated outstanding reserves of about 14 million Ghana cedis. It was therefore, recommended that SIC motor insurance department should set aside extra 3% of the estimated reserve to cater for possible incurred but not reported claims in 2015 and beyond.
A Thesis submitted to the Department of Mathematics, Kwame Nkrumah University of Science and Technology in Partial Fulfillment of the Requirements for the Degree of Master Of Science Institute Of Distance Learning