Economics - Research Publications

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Modelling mortgage insurance as a multi-state process

Taylor, Greg ; Mulquiney, Peter ( 2006-02)

Mortgage insurance claims are considered in Section 2 as an absorbing state in aMarkov chain that involves transitions between the states Healthy, In arrears,Property in Possession, Property sold, Loan discharged, Claim. Section 3considers the representation of this process by a cascade of five frequencyGLMs, and a further GLM for claim size. These models are applied to theforecast of technical liabilities in Section 4, and the estimation of the associatedforecast error in Section 5.
Further Observations on Chain Ladder Bias

Taylor, Greg ( 2002-01)

The chain ladder forecast (CLF) has previously been shown to be biased upward. The present paper calculates the second order approximation to the magnitude of the bias, ie the Taylor series for the bias truncated at terms involving second order moments of observations. Some order relations between data triangles are obtained with respect to this second order bias. While the prediction error of the CLF, as a predictor of loss reserve, does not have zero mean, it does have zero median under certain circumstances. Some numerical consequences are explored.