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On the Safety Loading for Chain Ladder Estimates: a Monte Carlo Simulation Study

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  • Schiegl, M.

Abstract

A method for analysing the risk of taking a too low reserve level by the use of Chain Ladder method is developed. We give an answer to the question of how much safety loading in terms of the Chain Ladder standard error has to be added to the Chain Ladder reserve in order to reach a specified security level in loss reserving. This is an important question in the framework of integrated risk management of an insurance company. Furthermore we investigate the relative bias of Chain Ladder estimators. We use Monte Carlo simulation technique as well as the collective model of risk theory in each cell of run-off table. We analyse deviation between Chain Ladder reserves and Monte Carlo simulated reserves statistically. Our results document dependency on claim number and claim size distribution types and parameters.

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  • Schiegl, M., 2002. "On the Safety Loading for Chain Ladder Estimates: a Monte Carlo Simulation Study," ASTIN Bulletin, Cambridge University Press, vol. 32(1), pages 107-128, May.
    • Handle: RePEc:cup:astinb:v:32:y:2002:i:01:p:107-128_01
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    Cited by:

    1. Magda Schiegl, 2010. "A three dimensional stochastic Model for Claim Reserving," Papers 1009.4146, arXiv.org.
    2. Denuit, Michel & Trufin, Julien, 2016. "Beyond the Tweedie Reserving Model: The Collective Approach to Loss Development," LIDAM Discussion Papers ISBA 2016030, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).

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