Net Trend

judyohjudyoh
edited September 2023 in WernerC.MedMal
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To clarify, the BF method required a trend factor to calculate ultimates, but the net trend selection requires ultimates which uses those derived from the BF method?

(As a side, I recall that for BF we use EP and not OLEP. In the case of losses, we should use trend the losses?)

Because the BF method is used for 2012-2014, we use 2005-2011 to select a net trend (in sheet 1) and use this for calculating a BF ultimate for 2012-2014. Once we have ultimate losses for 2012-2014, we use those ultimates to select a net trend for all accident years and which is used for the indicated rate change?

Comments

  • GrahamGraham

    You're right in noting the somewhat circular logic: The Bornhuetter-Ferguson (BF) method requires trended data to estimate ultimate losses, but the net trend itself is based on ultimate losses. This is an example of the complexities involved in actuarial work, where multiple methods intersect and inform each other.

    • Q1: Yes, in BF, you typically use Earned Premium (EP) rather than On-Level Earned Premium (OLEP) as the BF method is more focused on historical loss ratios. Trending the losses helps ensure that you're using comparable numbers when calculating ultimate losses.
    • Q2: Regarding the use of 2005-2011 data for trend selection in Sheet 1: That would generally make sense if you're using BF for 2012-2014. Older data helps you understand historical trends so that you can apply those patterns to the most recent accident years. Once you have the ultimate losses for 2012-2014, you could use those to refine or validate the trend factor.
    • Q3: The net trend factor calculated using ultimate losses from 2012-2014 would indeed be used for the indicated rate change. This aligns the estimated future losses with historical patterns.

    Hope this clears things up.

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