Measuring the Variability of Chain Ladder Reserve Estimates

The variability of chain ladder reserve estimates is quantified without assuming any specific claims amount distribution function. This is done by establishing a formula for the socalled standard error which is an estimate for the standard deviation of the outstanding claims reserve. The information necessary for this purpose is extracted only from the usual chain ladder formulae. With the standard error as decisive tool it is shown how a confidence interval for the outstanding claims reserve and for the ultimate claims amount can be constructed. Moreover, the analysis of the information extracted and of its implications shows when it is appropriate to apply the chain ladder method and when not. Submitted to the 1993 CAS Prize Paper Competition on 'Variability of Loss Reserves' Presented at the May, 1993 meeting of the Casualty Actuarial Society. Reproduction in whole or in part without acknowledgement to the Casualty Actuarial Society is specifically prohibited.