dfCorTest {ChainLadder}R Documentation

Testing for Correlations between Subsequent Development Factors


One of the main assumptions underlying the chain ladder method is the uncorrelation of subsequest development factor. The function tests this assumption.


dfCorTest(Triangle, ci = .5)



cumulative claims triangle. Assume columns are the development period, use transpose otherwise. A (mxn)-matrix C_{ik} which is filled for k \leq n+1-i; i=1,\ldots,m; m\geq n , see qpaid for how to use (mxn)-development triangles with m<n, say higher development period frequency (e.g quarterly) than origin period frequency (e.g accident years).


confidence interval. Default: .5. A confidence interval is a type of interval estimate, computed from the statis tics of the observed data, that might contain the true value of an unknown population parameter. The interval has an associated confidence level that quantifies the level of confidence that the parameter lies in the interval.


As described by the Mack's 1994 paper a procedure is designed to test for calendar year influences.

The usual test for uncorrelatedness requires that we have identically distributed pairs of observations which come from a Normal distribution. Both conditions are usually not fulfilled for adjacent columns of development factors. Spearman's correlation coefficient is therefore used.

The metric calulated by the procudeure described return a statistic T that it is assumed to be Normally Distributed. It is therefore possible to define a confidence interval threshold in order to evaluate the outcome of the test.


dfCorTest returns a list with the following elements


summary statistic


variance of the resulting distribution


vector of the range corresponding the confidence interval threshold selected


confidence interval


Additional references for further reading:

Thomas Mack. Distribution-free calculation of the standard error of chain ladder reserve estimates. Astin Bulletin. Vol. 23. No 2. 1993. pp.213:225

Thomas Mack. The standard error of chain ladder reserve estimates: Recursive calculation and inclusion of a tail factor. Astin Bulletin. Vol. 29. No 2. 1999. pp.361:366

Venter, G.G., Testing the Assumptions of Age-to-Age Factors, Proceedings of the Casualty Actuarial Society LXXXV, 1998, pp. 807-847


Marco De Virgilis devirgilis.marco@gmail.com


Mack, T., Measuring the Variability of Chain Ladder Reserve Estimates, Casualty Actuarial Society Forum, Spring 1994

See Also

See also qpaid for dealing with non-square triangles, cyEffTest for the test for calendar year effect, chainladder for the chain-ladder method, summary.dfCorTest, plot.dfCorTest


# Before actually applying the Chain Ladder technique it is necessary to check
# whether the Development Factors are correlated

# Apply the function to the triangle and save the output into the variable test
test <- dfCorTest(RAA)

# Plot the confidence interval and the test metric

# The metric is within the confidence interval, therefore the Development Factors are nor correlated

# Print the summary table

# Print only the main outcomes
# The test has returned a negative outcome. This means that the triangle is 
# not affected by Development Factor Correlation and therefore the chain ladder method 
# can be applied.

[Package ChainLadder version 0.2.18 Index]