When Can Accident Years Be Regarded as Development Years?

The chain ladder (volume-weighted average development factor) is perhaps the most widely used of the link ratio (age-to-age development factor) techniques, being popular among actuaries in many countries. The chain ladder technique has a number of interesting properties. We present one such property, which indicates that the chain ladder doesn’t distinguish between accident years and development years. While we have not seen a proof of this property in English language journals, it appears in Dannenburg, Kaas and Usman [2]. The result is also discussed in Kaas et al. [3]. We give a simple proof that the chain ladder possesses this property and discuss its implications for the chain ladder technique. It becomes clear that the chain ladder does not capture the structure of real triangles.