Studies from A. Rohr and Colleagues Reveal New Findings on Actuarial Science (Chain Ladder And Error Propagation)

Insurance Weekly News

By a News Reporter-Staff News Editor at Insurance Weekly News -- Investigators discuss new findings in Actuarial Science. According to news originating from Basel, Switzerland, by VerticalNews editors, the research stated, "We show how estimators for the chain ladder prediction error in Mack's (1993) distribution-free stochastic model can be derived using the error propagation formula. Our method allows for the treatment of the general case of the prediction error of the loss development result between two arbitrary future horizons."

Our news journalists obtained a quote from the research, "In the well-known special cases considered previously by Mack (1993) and Merz and Wuthrich (2008), our estimators coincide with theirs. However, the algebraic form in which we cast them is new, considerably more compact and more intuitive to understand. For example, in the classical case treated by Mack (1993), we show that the mean squared prediction error divided by the squared estimated ultimate loss can be written as Sigma(j)(u) over cap (2)(j)(q) over cap (j), where (u) over cap (j) measures the (relative) uncertainty around the jth development factor and (q) over cap (j) the proportion of the estimated ultimate loss that it affects. The error propagation method also provides a natural split into process error and parameter error. Our proofs identify and exploit symmetries of 'chain ladder processes' in a novel way."

According to the news editors, the research concluded: "For the sake of wider practical applicability of the formulae derived, we allow for incomplete historical data and the exclusion of outliers in the triangles."

For more information on this research see: Chain Ladder And Error Propagation. Astin Bulletin, 2016;46(2):293-330. Astin Bulletin can be contacted at: Cambridge Univ Press, Edinburgh Bldg, Shaftesbury Rd, CB2 8RU Cambridge, England.

The news correspondents report that additional information may be obtained from A. Rohr, Helvetia Insurance Switzerland, St Alban Anlage 26, CH-4002 Basel, Switzerland.