This method blends historical loss development patterns with an initial expected loss ratio (often derived from the ratemaking department). It is highly effective for young, immature accident years where actual data is volatile or scarce, as it prevents small, early fluke claims from distorting the long-term projection. Expected Loss Ratio Method
This method assumes that future claim development will follow historical patterns. The actuary multiplies cumulative historical losses by the calculated link ratios to project ultimate losses for each accident year. The reserve is the ultimate loss minus payments made to date. Bornhuetter-Ferguson Method This method blends historical loss development patterns with
: Actuaries must use data from past years to price policies for next year. They must apply trend factors to account for inflation, shifting legal environments, and changing driving or building habits. The actuary multiplies cumulative historical losses by the
An actuary is analyzing Auto Liability data for Accident Year 2023. They must apply trend factors to account for