Sparse Seemingly Unrelated Regression (SSUR) Copula Mixed Models for Multivariate Loss Reserving (2509.05426v1)

Abstract: Insurance companies often operate across multiple interrelated lines of business (LOBs), and accounting for dependencies between them is essential for accurate reserve estimation and risk capital determination. In our previous work on the Extended Deep Triangle (EDT), we demonstrated that a more flexible model that uses multiple companies' data reduces reserve prediction error and increases diversification benefits. However, the EDT's limitation lies in its limited interpretability of the dependence structure, which is an important feature needed by insurers to guide strategic decisions. Motivated by the need for interpretability and flexibility, this paper proposes a Seemingly Unrelated Regression (SUR) copula mixed model to handle heterogeneous data across multiple companies. The model incorporates random effects to capture company-specific heterogeneity, uses flexible marginal distributions across LOBs, and treats development and accident year effects as fixed effects with shrinkage via LASSO to enhance robustness. We estimate the model using an iterative two-stage procedure and generate predictive reserve distributions via a modified bootstrap that accounts for systematic effects, dependence structure, and sparse fixed-effect coefficients. Through simulation studies and real data from the National Association of Insurance Commissioners, we show that the proposed model outperforms the SUR copula regression model in terms of reserve accuracy and generates larger risk capital gain. Overall, the SUR copula mixed model achieves better predictive performance, greater risk diversification, and retains interpretability.