J
Jun Wu
Member
Dear all
Hope you are well.
Just want to connect the concept of reserve risk with Stochastic Reserving and Capital Modelling chapters.
Please help me to understand this better, much much appreciated !
Many thanks
Best regards
Jun
Hope you are well.
Just want to connect the concept of reserve risk with Stochastic Reserving and Capital Modelling chapters.
- My understanding is that reserve risk is the risk that our Best Estimate reserve comes out to be different to what is actually required, it is similar to a range of best estimate reserve?
- I also see the phrase variance of reserve/ultimate claims being mentioned in SP7, is that the same as reserve risk?
- Then, Stochastic reserving techniques such as bootstrapping an ODP is a way to estimate this reserve risk - ie it gives a distribution of reserve by simulation.
- Reserve risk is a component of capital model, and the capital charge for reserve risk is the difference between Best Estimate reserve and the reserve estimate at a chosen risk tolerance. What exactly does risk tolerance mean? I read about it being the VaR for example or is it the risk measure that I get confused with, but my understanding is that it can be anything such as the probability of the capital charge being enough to cover the short fall between Best Estimate reserve and the actual reserve required for 95% of the time. etc. ?
Please help me to understand this better, much much appreciated !
Many thanks
Best regards
Jun