The Prediction Error of the Chain Ladder Method (With Application to Real Data)

  •  Afaf Antar Zohry    
  •  Mostafa Abdelghany Ahmed    


The chain ladder method is the most widely used method of estimating claims reserves due to its simplicity and ease of application. It is very important to know the accuracy of the resulting estimates. Murphy presented a recursive model to estimate the standard error of claims reserves estimates, in line with the solvency ii requirements as a new regulatory framework adjusted according to risk, which requires the necessity to estimate the error and uncertainty of the claims reserving estimates. In Murphy's model, the mean square error (MSE) is analyzed into its components: variance and bias. In this paper, the recursive model of Murphy was used to estimate the prediction error in claims reserves estimates of General Accident & Miscellaneous Insurance in one of the Egyptian insurance companies.

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