One-year estimation uncertainty in some claim development models

ABSTRACT

The paper studies the one-year estimation uncertainty associated with using credibility-based loss reserving methods, when claim development can be described by the models of Bühlmann-Straub or Hesselager-Witting. Having found a formula, it seems natural to minimise the one-year estimation uncertainty in the same way as one can minimise the ultimate uncertainty, i.e. to minimise the MSEP. It turns out that minimisation of the one-year estimation uncertainty leads to unreasonable and unsightly results. This puts into question the sanity of the concept of one-year estimation uncertainty.