Back-Testing the Chain-Ladder Method

Abstract

The chain-ladder method is one of the most popular claims reserving techniques. The aim of this study is to back-test the chain-ladder method. Therefore, we use a stochastic scenario generator which allows us to simulate arbitrarily many upper claims reserving triangles of similar characteristics for which we also know the corresponding lower triangles. Based on these simulated triangles we analyse the performance of the chain-ladder claims reserving method.

Keywords: chain-ladder, individual claims history simulation machine, claims reserving, loss reserving, back-testing, portfolio size, reserve uncertainty

JEL Classification: G22