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Asymptotic consistency and inconsistency of the chain ladder

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  • Pešta, Michal
  • Hudecová, Šárka

Abstract

The distribution-free chain ladder reserving method belongs to the most frequently used approaches in general insurance. It is well known, see Mack (1993), that the estimators f̂j of the development factors are unbiased and mutually uncorrelated under some mild conditions on the mean structure and under the assumption of independence of the claims in different accident years. In this article we deal with some asymptotic properties of f̂j. Necessary and sufficient conditions for asymptotic consistency of the estimators of true development factors fj are provided. A rate of convergence for the consistency is derived. Possible violation of these conditions and its consequences are discussed, and some practical recommendations are given. Numerical simulations and a real data example are provided as well.

Suggested Citation

  • Pešta, Michal & Hudecová, Šárka, 2012. "Asymptotic consistency and inconsistency of the chain ladder," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 472-479.
    • Handle: RePEc:eee:insuma:v:51:y:2012:i:2:p:472-479
    DOI: 10.1016/j.insmatheco.2012.07.004
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    References listed on IDEAS

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    1. Mack, Thomas, 1993. "Distribution-free Calculation of the Standard Error of Chain Ladder Reserve Estimates," ASTIN Bulletin, Cambridge University Press, vol. 23(2), pages 213-225, November.
    2. England, P.D. & Verrall, R.J., 2002. "Stochastic Claims Reserving in General Insurance," British Actuarial Journal, Cambridge University Press, vol. 8(3), pages 443-518, August.
    3. Renshaw, A.E. & Verrall, R.J., 1998. "A Stochastic Model Underlying the Chain-Ladder Technique," British Actuarial Journal, Cambridge University Press, vol. 4(4), pages 903-923, October.
    4. Mack, Thomas, 1994. "Which stochastic model is underlying the chain ladder method?," Insurance: Mathematics and Economics, Elsevier, vol. 15(2-3), pages 133-138, December.
    5. Taylor, G. C. & Ashe, F. R., 1983. "Second moments of estimates of outstanding claims," Journal of Econometrics, Elsevier, vol. 23(1), pages 37-61, September.
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    Citations

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    Cited by:

    1. Hudecová, Šárka & Pešta, Michal, 2013. "Modeling dependencies in claims reserving with GEE," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 786-794.
    2. Mat'uv{s} Maciak & Ostap Okhrin & Michal Pev{s}ta, 2018. "Dynamic and granular loss reserving with copulae," Papers 1801.01792, arXiv.org.
    3. Pešta, Michal & Okhrin, Ostap, 2014. "Conditional least squares and copulae in claims reserving for a single line of business," Insurance: Mathematics and Economics, Elsevier, vol. 56(C), pages 28-37.

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    More about this item

    Keywords

    IM10; IM20; Claims reserving; Chain ladder; Asymptotic properties; Development factors;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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