Modified Munich Chain-Ladder Method

Abstract

The Munich chain-ladder method for claims reserving was introduced by Quarg and Mack on an axiomatic basis. We analyze these axioms, and we define a modified Munich chain-ladder method which is based on an explicit stochastic model. This stochastic model then allows us to consider claims prediction and prediction uncertainty for the Munich chain-ladder method in a consistent way.

Keywords

• Munich chain-ladder method
• claims reserving
• prediction uncertainty
• mean-square error of prediction
• multivariate Gaussian model
• paid and incurred claims