Bornhuetter-Ferguson Reserving Method with Repricing

Abstract

The Bornhuetter-Ferguson (BF) reserve of an accident year is the product of an a priori estimate of the expected ultimate claim and the estimated 'still to come percentage'. In practice, these a priori estimates are often adjusted over time. We call this process 'repricing'. In this paper we study the incorporation of claims experience for the repricing process by using credibility theory. We simultaneously estimate the still to come percentages and we quantify the prediction uncertainty of the resulting reserves. In a special case the method can be interpreted as a weighted average between chain ladder (CL) and BF.