Its intent is to estimate incurred but not reported claims and project ultimate loss amounts.
For example, the entry '43,169,009' represents loss amounts related to claims occurring in 1998, valued as of 24 months.
Next, age-to-age factors are determined by calculating the ratio of losses at subsequent valuation dates.
[6] [7] [8] The chain-ladder technique is only accurate when patterns of loss development in the past can be assumed to continue in the future.
[1] The chain-ladder method is also very responsive to changes in experience, and as a result, it may be unsuitable for very volatile lines of business.