Stochastic Modeling of Loss Reserves Using Bayesian Monte Carlo Markov Chain

The Mack model and the Bootstrap Over-Dispersed Poisson model have long been the primary modeling tools used by actuaries and insurers to forecast losses. With the emergence of faster computational technology, new and novel methods to calculate and simulate data are more applicable than ever before. This paper explores the use of various Bayesian Monte Carlo Markov Chain models recommended by Glenn Meyers and compares the results to the simulated data from the Mack model and the Bootstrap Over-Dispersed Poisson model. Although the Mack model and the Bootstrap Over-Dispersed Poisson model are accurate to a certain degree, newer models could be developed that may yield better results. However, a general concern is that no singular model is able to reflect underlying information that only an individual who has intimate knowledge of the data would know. Thus, the purpose of this paper is not to distinguish one model that works for all applicable data, but to propose various models that have pros and cons and suggest ways that they can be improved upon.