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

2. Adjustments to the B-F Reserving Method
Agenda
Background
The Adjustment
Some Formulas
Examples

3. Opinions expressed are mine alone
Considerations:
Opinions expressed are mine alone
Judgment should supercede ANY formula
Application may be limited
Credibility measure is judgmental
I think that these reliances and the background will help put the discussion into proper context.
First, the opinions and ideas expressed are not necessarily those of my employer or of the CLRS organizers. I take full responsibility for this.
As with any method, I believe that actuarial judgment plays a large part in its application. Clear understanding of the nature of the business reviewed and the nature of the insurer are important aspects of developing any reserve estimate.
The method describe might have limited application (again, refer to the judgment statement)
Finally, the credibility measure used is based on judgment and not a formal derivation.

4. 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

5. 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

6. Last Year’s Selected Ultimate Last Year’s Initial Expected
Balance of Stability and responsiveness
Last Year’s
Initial Expected

7. What should be used for the a priori loss estimate?
What are the implications of this adjustment?

8. 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

9. Adjusted Bornhuetter - Ferguson Formula
Almost a credibility weighting of ILDM, SULt-1, and ELMt-1

10. What is an appropriate Y?
Suggest Y is a function of the Reporting Pattern from prior analysis

12. Sample Adjusted Expected Loss Ratios
Using Alternative Credibility Measures

13. Adjusted Bornhuetter - Ferguson Example
Questions
Good bye