Borheutter Method
This technique can be used to project ultimate losses with pure premiums, average claim size, or expected loss ratio. One of these values is selected for each year by reviewing the results from other methods, and analyzing company and industry trends. To use the method with pure premium, expected losses are derived as the product of the exposures, the selected pure premium, and the loss emergence factor. The loss emergence factor is the complement of the reciprocal of the cumulative development factor selected in the paid loss development method. The resulting expected losses are added to losses paid to date to calculate ultimate incurred losses.
This method may be appropriate in situations where:
Incurred losses and paid losses use a traditional Bornhuetter/Ferguson approach. The expected loss ratios used in this projection are developed from a review of the results of other methods and the Reliance National Adjusted Expected Loss Ratio. This method combines expected losses with losses reported to date. Only the method using incurred losses is used in the final projection of ultimate loss. The paid projection is only used in selecting the average claim size. This method assumes that the emergence of reported losses (or paid losses) after any evaluation date is not a function of losses reported as of that date, but depends on an independent measure of expected losses. Thus this method works well for immature policy years.