Guszcza and Lommele
Published way back in 2006, Guszcza and Lommele (2006) presented a model to develop reserves based on individual claim data.
- 5,000 claims per year
- Value at first evaluation period is the same, lognormal
- Subsequent amounts are multiplicative chain ladder
- Current period amount equals prior period times link ratio
- Link ratios are random
- Expected value and variance of link ratio depends on credit quality
- Fit the model using a Poisson GLM
- Aggregation of claims data misses the specific structure of the data
Regression based on individual claims looks pretty good. Axes are on a log scale.
However, things look different when we differentiate based on credit grouping.