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Adjustments to the B-F Reserving Method 1999 Casualty Loss Reserve Seminar. September 14, 1999 Ted Dew. Adjustments to the B-F Reserving Method. Agenda Background The Adjustment Some Formulas Examples. Considerations:. Opinions expressed are mine alone

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Presentation Transcript
slide1

Adjustments to the B-F Reserving Method

1999 Casualty Loss Reserve Seminar

September 14, 1999

Ted Dew

slide2

Adjustments to the B-F Reserving Method

  • Agenda
  • Background
  • The Adjustment
  • Some Formulas
  • Examples
slide3

Considerations:

  • Opinions expressed are mine alone
  • Judgment should supercede ANY formula
  • Application may be limited
  • Credibility measure is judgmental
slide4

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
slide5

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
slide6

Last Year’s

Selected Ultimate

Last Year’s

Initial Expected

slide7

What should be used for the a priori loss estimate?

What are the implications of this adjustment?

slide8

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
slide9

Adjusted Bornhuetter - Ferguson Formula

  • Almost a credibility weighting of ILDM, SULt-1, and ELMt-1
slide10

What is an appropriate Y?

  • Suggest Y is a function of the Reporting Pattern from prior analysis
slide12

Sample Adjusted Expected Loss Ratios

Using Alternative Credibility Measures