BF Selection

Crucial to the actuarial craft is estimating how losses will develop.  Say someone gets in a car accident, it’s easy to figure out how much fixing the car will cost but it can take years for all the costs of an injury to come to light.  If a firm has enough history, you can calculate a loss development to pull those losses forward based on loss data but often the data can be spare so one has to use another method.  One of the most popular is the Bornhuetter-Ferguson method often abbreviated to “BF method”.

This creates an odd scenario:

Coworker #1: The paucity of data makes LDF selection tenuous.
Coworker #2: I think we should go with the BF value I selected.
Coworker #1: Your BF is poorly supported.
Coworker #2: My BF is better than yours, I think.

I’m glad my grown coworkers get to argue about who has a better BF.  I really wanted to chime in with “which of your BFs brought you flowers most recently?”