Chain Ladder

Question 1

Disadvantage of Chain Ladder

Answer 1

1. Estimates highly sensitive to losses for immature years esp for long LOBs
2. Produces inaccurate results when there are changes in settlement rates (paid claims triangle) as paid CDFs will not account for this change
3. Produces inaccurate results when there are changes in case reserve adequacy (using rept claim triangle) as rept CDFs will not account for this change