Bornhuetter-Ferguson Method for Loss Reserves and IBNR - P&C Insurance - Actuarial 101

[@AleksK-z2y]

i just start my internship as a p and c actuarial intern, and i have watched literally all of your videos. this has been so helpful. thank you so much

[@ArcherActuarialConsulting]

Hi Aleks, I really appreciate your comment! Thanks and best of luck in your internship! Don

[@MuavhaZ]

Awesome video. A very good, easy-to-follow explanation!

[@emilysoh5956]

Could you explain how to derive % of ultimate loss expected to be paid from the loss development pattern?

[@ArcherActuarialConsulting]

Hi Emily. A loss development pattern can be represented in a few ways: 1) as % of ultimate 2) as incremental LDFs (loss development factors) 3) as cumulative LDFs Here are the relationships between the above: - Cumulative LDFs are a multiplicative cumulation of incremental LDFs - The % of ultimate is the reciprocal of the cumulative LDFs. Assuming you have a paid loss development pattern of cumulative LDFs, you can calculated the expected % paid at each age by taking the reciprocal of the corresponding cumulative LDF. Below is an example for a single maturity: Cumulative Paid LDF @ age 12 = 2.00 Exp % Paid @ age 12 = 1 / 2.00 = 50% Hope this helps!

[@DavidAxelrodP]

Great video! I want to make sure I'm understanding this correctly. Say its jan 1 and your data is telling you to expect $1000 in Est Ult Loss for the year. Then July first rolls around and you've only paid 300 for the year so far (lucky you). Would the new Est Ult Loss be 300 + (50% of year remaining x $1000) = 800?

[@ArcherActuarialConsulting]

Hi David, thanks for the feedback! Your understanding is correct except for your assumption that 50% of the ultimate loss for the year will be paid by July 1st. This percentage is determined by the paid loss development pattern (not the portion of the accident year elapsed). One use of a paid loss development pattern is to determine the expected percentage of paid loss a time t, where t is the time elapsed from the beginning of the accident year. Depending on the coverage under review, it may take several years for 50% of payments to be made for a particular accident year. I also have video on loss development patterns here: kzbin.info/www/bejne/pX-UiJ-cfM59Y6c

[@ArcherActuarialConsulting]

The "one question you must ask" begins here: 7:39

[@ArcherActuarialConsulting]

If you're looking for a more technical description of the Bornhuetter-Ferguson method, be sure to check out this video: kzbin.info/www/bejne/jqSuhYymdrKWrNE

[@1984Pavel]

IBNR - Incurred but Not Reported, but you said 3:45 that IBNR means Not Incurred. Stopped watching after that

[@ArcherActuarialConsulting]

Thank you, I support your decision.