Study of Characteristics of One-Year and Ultimate Reserve Risk Distributions Based on Market Data

Abstract

In this work, we perform an analysis of commonly used characteristics of the one-year and ultimate reserve risk distributions: duration, first development factor, coefficient of variation, skewness coefficient, skewness-to-CoV ratio, aggregated emergence factor, emergence pattern, and risk margin run-off pattern for the standard deviation based risk measure and for the best-estimate reserves scaled risk measure approach. Our study is based on empirical data for two European markets: Polish and Slovak. We provide benchmarks and ranges for the considered characteristics, as well as analyse the relations between them. We examine and assess the results for all Solvency II LoBs and we also compare the coefficient of variation results to the Standard Formula reserve risk standard deviations. We investigate more deeply the topic of emergence pattern - we analyse the impact of different characteristics of the claims triangle on its structure.