Considerations Regarding the Chain Ladder Model

By Society of Actuaries · 2025

Study guide: Exam GI-301

A study note of the Education Committee of the Society of Actuaries, dated May 2025. It considers the conditions under which the Chain Ladder method is applicable to a business case, how its assumptions can be tested, what to explore when they do not hold, and how its prediction error is calculated so as to understand the distribution of reserves rather than rely solely on point estimates.

On the syllabus

• Exam GI-301 — Outcomes 1a-d; excluding section 3.

1 Introduction

• Notation

2 Assumptions Underlying the Chain Ladder Method

3 Assumptions Underlying Mack's Model

4 Testing the CL Assumption 1

• 4.1 Significance of the Development Factor
• 4.2 Superiority to Alternative Emergence Patterns
• 4.3 Analysis of Residuals
• 4.4 Stability of Results
• 4.5 Testing Other Assumptions

5 Alternative Models

• 5.1 Lognormal Model
• 5.2 Gamma Model
• 5.3 Hoerl Curve
• 5.4 Smoothing Models (Additive CL)
• 5.5 Bayesian Models

6 References

Sources

• Considerations Regarding the Chain Ladder Model (SOA Study Note, May 2025) — the document: title page, table of contents, bookmarks, and the introduction for the lead; the title page names no author, so the Society of Actuaries is given
• GI 301 Syllabus, Mar 2027/Jul 2027 (SOA) — the citation and the assignment (outcomes 1a-d, excluding section 3)