Skip to main content Accessibility help

Linear Stochastic Reserving Methods

  • René Dahms (a1)


In this article we want to motivate and analyse a wide family of reserving models, called linear stochastic reserving methods (LSRMs). The main idea behind them is the assumption that the (conditionally) expected changes of claim properties during a development period are proportional to exposures which depend linearly on the past. This means the discussion about the choice of reserving methods can be based on heuristic reasons about exposures driving the claims development, which in our opinion is much better than a pure philosophic approach. Moreover, the assumptions of LSRMs do not include the independence of accident periods.

We will see that many common reserving methods, like the Chain-Ladder-Method, the Bornhuetter-Ferguson-Method and the Complementary-Loss-Ratio-Method, can be interpreted in this way. But using the LSRM framework you can do more. For instance you can couple different triangles via exposures. This leads to reserving methods which look at a whole bundle of triangles at once and use the information of all triangles in order to estimate the future development of each of them.

We will present unbiased estimators for the expected ultimate and estimators for the mean squared error of prediction, which may become an integral part of IFRS 4. Moreover, we will look at the one period solvency reserving risk, which already is an important part of Solvency II, and present a corresponding estimator.

Finally we will present two examples that illustrate some features of LSRMs.



Hide All
Braun, C. (2004) The prediction error of the chain ladder method applied to correlated run-off triangles. ASTIN Bulletin, 35, 399423.
Buchwalder, M., Bühlmann, H., Merz, M. and Wüthrich, M.V. (2006) The mean square error of prediction in the chain ladder reserving method (Mack and Murphy revisited). ASTIN Bulletin, 36, 521542.
Dahms, R. (2008) A loss reserving method for incomplete data. SAV Bulletin, 1–2, 127148.
Dahms, R., Merz, M. and Wüthrich, M.V. (2009) Claims development result for combined claims incurred and claims paid data. Bulletin Français d'Actuariat 9, 18, 539.
Halliwell, L.J. (1997) Conjoint prediction of paid and incurred losses. CAS Forum (Summer), 1, 241379.
Mack, T. (1993) Distribution-free calculation of the standard error of chain ladder reserve estimates. ASTIN Bulletin, 23(2), 213225.
Mack, T. (1997) Schadenversicherungsmathematik. Karlsruhe, Verlag Versicherungswirtschaft.
Mack, T. (2008) The prediction error for Bornhuetter-Ferguson. ASTIN Bulletin, 38, 87103.
Merz, M. and Wüthrich, M.V. (2006) A credibility approach to the Munich Chain-Ladder Method. Blätter DGVFM XXVII, 619628.
Merz, M. and Wüthrich, M.V. (2008) Stochastic Claims Reserving Methods in Insurance. New York – Chichester, Wiley.
Merz, M. and Wüthrich, M.V. (2010) Paid-incurred chain claims reserving method. Insurance: Math. & Econom., 46(3), 568579.
Quarg, G. and Mack, T. (2004) Munich chain ladder. Blätter DGVFM XXVI, 597630.


Linear Stochastic Reserving Methods

  • René Dahms (a1)


Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed