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

When projecting a cumulative claims run-off triangle with the basic chain ladder method, which assumption is made about the pattern of claims development?

The basic chain ladder assumes that claims develop in the same proportions across development years for every accident year, so a single set of development factors, estimated from the past data, is applied to each year's latest cumulative claims.

  1. AClaims develop in the same proportions across development years for every accident year, so one set of development factors applies to allCorrect
  2. BEach accident year has a different development pattern that is estimated separately
  3. CFuture claims are independent of past cumulative claims and depend only on inflation
  4. DIncremental claims in each development year are constant across accident years
  5. Claims development stops after the first development year

Explanation

The basic chain ladder assumes the proportional development of cumulative claims is the same for every accident year, so the same development factors are applied to the latest cumulative figure of each year. The other options describe different or unrelated assumptions.

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