Claims Reserving Manual, vol.2: Section D6: Measuring the variability of chain ladder reserve estimates

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The variability of chain ladder reserve estimates is quantified without assuming any specific claims amount distribution function. This is done by establishing a formula for the so-called standard error which is an estimate for the standard deviation of the outstanding claims reserve. The information necessary for this purpose is extracted only from the usual chain ladder formulae. With the standard error as a tool it is shown how a confidence interval for the outstanding claims reserve and for the ultimate claims amount can be constructed. Moreover, the analysis of the information extracted and of its implications shows when it may be appropriate to apply the chain ladder method and when it may not be.