Prediction Error of the Chain Ladder Reserving Method applied to Correlated Run-off Triangles

M. Merz and M. V. Wüthrich

Annals of Actuarial Science, 2007, vol. 2, issue 1, 25-50

Abstract: In Buchwalder et al. (2006) we revisited Mack's (1993) and Murphy's (1994) estimates for the mean square error of prediction (MSEP) of the chain ladder claims reserving method. This was done using a time series model for the chain ladder method. In this paper we extend the time series model to determine an estimate for the MSEP of a portfolio of N correlated run-off triangles. This estimate differs in the special case N = 2 from the estimate given by Braun (2004). We discuss the differences between the estimates.

Date: 2007
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