Skip to content

IAI Actuarial Core Principles · Economic Modelling · Run-off triangles

In the basic chain-ladder method applied to a cumulative run-off triangle of claims, which assumption is being made about future claims development?

The chain-ladder method assumes development factors between successive development periods are the same for all accident years. Factors estimated from older years are applied to the latest cumulative claims of each year to project ultimate claims.

  1. ADevelopment factors from each development period to the next are the same for all accident yearsCorrect
  2. BIncremental claims in each development period are a fixed amount regardless of accident year
  3. CClaims inflation is explicitly zero in all future calendar years
  4. DEach accident year's ultimate claims equal the average ultimate of earlier years
  5. Future claim payments are independent of payments already made in the same accident year

Explanation

The chain-ladder method assumes that the proportional development from one period to the next is the same for every accident year, so the factors estimated from past years are applied to the latest cumulative figures. It does not use fixed incremental amounts, and future claims are assumed to depend on the cumulative claims already paid.

Did you get it right without looking?

One question tells you little. A timed set on Run-off triangles shows your real accuracy, how long you take and where you lose marks.

Practise Run-off trianglesFree diagnostic mock

More Run-off triangles questions