Comparison of the Mack Chain-Ladder method and the Munich Chain-Ladder method in estimating IBNR claim reserves.

One way to anticipate risks can be done using insurance products. In insurance, there is the term claim reserve, which is an estimated fund that must be prepared by an insurance company as a reserve to cover future claim payments. Determining the size of IBNR claim reserves is one of the important things in insurance. The amount of reserves for IBNR claims cannot be determined with certainty, so an estimate is needed as accurately as possible. To calculate estimated reserves for IBNR claims, there are several methods that can be used. This study uses the chain-ladder method and the Munich chain-ladder method. In the chain-ladder method, estimates of reserves for claims use the assumption that years of the accident are stochastically independent but have the same development factor and parameter σ for each year of delay. In the Munich chain-ladder method, the estimation of claim reserves uses the correlation between paid claims and incurred claims in the form of a development factor parameter to determine estimated claims reserves. In the Munich Chain Ladder method, the estimation process depends on parameter characteristics that must be met, and if they are not met, it will result in a poor estimate. However, currently, most insurance companies still use the Mack Chain Ladder method in estimating IBNR claim reserves because of its simplicity. This study compares the results of estimated reserves for IBNR claims obtained using these two methods. The Munich Chain Ladder The study found that based on the gap between the estimated IBNR results of the losses paid and the actual losses incurred, the use of the chain-ladder method produces a smaller gap than the Munich chain-ladder method. [ABSTRACT FROM AUTHOR]