Modelling zeros in stochastic reserving models

This paper presents a mixture model to extend stochastic reserving models for incremental loss data triangles, which should be noted to include zero. Stochastic reserving models are usually applied to incremental loss data triangles. Most models, due to their underlying assumptions, place restrictions on the number of incremental claims that can be zero and/or negative. These assumptions, in practice, might not be satisfied. From the nature of the claims reserving problem, it is expected that a higher proportion of zeros would be observed in the later stages of the incremental loss data triangle. In reinsurance, zero claims are also frequently observed in incremental loss data triangles for excess layers.