Adjustments to the BF Reserving Method

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Adjustments to the B-F Reserving Method 1999
Casualty Loss Reserve Seminar
September 14, 1999 Ted Dew
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Adjustments to the B-F Reserving Method

• Agenda
• Background
• The Adjustment
• Some Formulas
• Examples

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Considerations

• Opinions expressed are mine alone
• Judgment should supercede ANY formula
• Application may be limited
• Credibility measure is judgmental

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London Market and Bermuda Reinsurance Reserving

• Pricing Information Not Readily Available
• ELRs Selected Based on Judgment
• Ultimate Loss Ratios Volatile
• Reporting Patterns Volatile
• Payment Patterns Slow and Unreliable

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• Motivation
• Desire to formalize alternative projection of
  ultimate losses
• Prior ultimate loss selection would seem to have
  some value in selecting current a priori estimate
  of expected losses

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Last Years Selected Ultimate
Last Years Initial Expected
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What should be used for the a priori loss
estimate?
What are the implications of this adjustment?
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Bornhuetter - Ferguson Formula

• The BF Method Combines Actual Reported Losses and
  Expected Unreported Losses

• This can also be thought of as a credibility
  weighting between the Loss Development Method and
  the Expected Loss Method

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Adjusted Bornhuetter - Ferguson Formula

• Almost a credibility weighting of ILDM, SULt-1,
  and ELMt-1

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What is an appropriate Y?

• Suggest Y is a function of the Reporting Pattern
  from prior analysis

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(No Transcript)
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Sample Adjusted Expected Loss Ratios Using
Alternative Credibility Measures
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Adjusted Bornhuetter - Ferguson Example
Questions
Good bye