Actuarial reserving method that projects claims to their ultimate amount by applying historically observed development factors.
Chain ladder is the most widely used non-life actuarial reserving method. It relies on a run-off triangle whose rows represent accident years and columns development lags. Loss development factors (LDFs) are calculated by dividing cumulative totals in one column by those in the prior column, then averaged over several years. These factors are then chained (hence the name) to project undeveloped accident years to their ultimate amount. IBNR is the difference between projected ultimate and current cumulative. The method is simple, transparent and auditable but assumes past development patterns are representative of the future, an assumption that can be undermined by changes in claims management practices or inflation.
Accident year 2022, 3-year cumulative: 4.2 M EUR. CDF 3→ultimate = 1.30. Estimated ultimate: 5.46 M EUR. IBNR = 5.46 − 4.20 = 1.26 M EUR.
méthode chain ladder, développement en triangle, triangle development method, CL method