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Adjustments to the B-F Reserving Method 1999 Casualty Loss Reserve Seminar

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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Adjustments to the B-F Reserving Method 1999 Casualty Loss Reserve Seminar

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

  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

  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

  11. Sample Adjusted Expected Loss Ratios Using Alternative Credibility Measures

  12. Adjusted Bornhuetter - Ferguson Example Questions Good bye

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