Chain Ladder Bias

The chain ladder (CL) is known to provide unbiased estimates of loss reserve under certain conditions. However, these conditions may not always be realistic. For example, they do not include the case in which all cells of a run-off triangle are stochastically independent. It is shown that, under this condition, the CL estimate tends to estimate the median loss reserve, and to be downward biased relative to the mean. The approximate bias correction factor is calculated.

Keywords: chain ladder, loss reserving