Mean Square Error of Prediction in the Bornhuetter–Ferguson Claims Reserving Method

D. H. Alai, M. Merz and M. V. Wüthrich

Annals of Actuarial Science, 2009, vol. 4, issue 1, 7-31

Abstract: The prediction of adequate claims reserves is a major subject in actuarial practice and science. Due to their simplicity, the chain ladder (CL) and Bornhuetter–Ferguson (BF) methods are the most commonly used claims reserving methods in practice. However, in contrast to the CL method, no estimator for the conditional mean square error of prediction (MSEP) of the ultimate claim has been derived in the BF method until now, and as such, this paper aims to fill that gap. This will be done in the framework of generalized linear models (GLM) using the (overdispersed) Poisson model motivation for the use of CL factor estimates in the estimation of the claims development pattern.

Date: 2009
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