Data Management

On The Savety Loading For Chain Ladder Estimates: A Monte Carlo Simulation Study

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Executive Summary

A method for analysing the risk of taking a too low reserve level by use of Chain Ladder method is developed. The authors 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 they investigate the relative bias of Chain Ladder estimators. They use Monte Carlo simulation technique as well as the collective model of risk theory in each cell of run-off table.

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