The Clark LDF method: study and comparison with other claims reserving methods

Abstract

Claims reserving are of utmost importance for an insurance company because they are the ones that will allow the company to face the liabilities acquired in the following periods. For this reason, implementing an accurate calculation of reserves is very important, since this amount will have an impact on the financial statements, besides being one of the important points to measure the solvency of such entity. For this purpose, a widely used model has been the deterministic Chain Ladder model, however, in the last decades, more sophisticated models including stochastic processes have been developed, thus, the calculation can be more accurate. The objective of this work is to use different models for the calculation of reserves, such as Clark LDF and Clark Cape Cod, in order to evaluate them and choose a reserve model that is accurate. Among the results found in this analysis, the Clark LDF model has shown less variability in the reserve projections, as opposed to the Chain Ladder model.