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

Published online by Cambridge University Press:  29 August 2014

M. Schiegl
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Abstract

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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.

Keywords

Risk TheoryReservingChain LadderMean Square ErrorSafety LoadingMonte Carlo SimulationCollective ModelPanjer Recursion
Type
Workshop
Information
ASTIN Bulletin: The Journal of the IAA , Volume 32 , Issue 1 , May 2002 , pp. 107 - 128
Copyright
Copyright © International Actuarial Association 2002

References

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