Basic Chain Ladder

Suppose the table shown below is constructed at 31/12/2007.

This table shows the cumulative amounts paid.

Settlement Delay in Years (development year)

0 1 2

Year of accident
2005 2100 2000 1900
2006 2050 1950
2007 2000

As you can see from the table all the development factors are less than 1 which implies over-reserving.

Am I correct that over-reserving is dealt with automatically by getting lower cumulative amounts in the future years?

Also the oustanding amounts would be negative which means that the outstanding reserves would be negative, how would this be dealt with?

Many Thanks

 

Sorry I am not sure I totally understand what you are asking... Hope this helps...

If you use the chain ladder formulaicly then yes you will get development factors less than one giving you savings in the later years (coming through as negative ibnr).

The outstanding amounts bit I am not sure about what you are asking? Are you saying what happens if the os is negative? Then just the same as above.

But you won't see negative os amounts much... or are you asking about the unpaid reserves (os+ibnr)?

 

Re

Many thanks for your help

I was asking about the o/s amounts in the 2nd question