Runoff Risk as a Part of Claims Fluctuation

The structure of the paper is the following. First, the main assumptions are given in Chapter 1, then the effect of the run-off phenomenon on the variance of the claims fluctuation is evaluated for the going-concern case in Chapter 2 and for the break-up case in Chapter 3. Some numerical examples will be given in Chapter 4 and finally in Chapter 5 the same effect is considered by using the simulation technique, which allows for more general assumptions on inflation and the other pertinent features involved. As mentioned above, the handling of the parameter estimation problem is deferred to a future paper. The estimation of claims reserves has already been explored in numerous meritorious treatises, see e.g., the Survey published by the NATIONALE NEDERLANDE (1981), the GISG Working Party summary paper of the British actuaries (1983), TAYLOR (1986) and many others. One of the early papers on the building of "a run-off theory" was published by PHILIPSON (1965). NORBERG (1985) when dealing with estimation techniques makes use of partially similar development functions as will be employed in this paper.