The "Modified Bornhuetter-Ferguson" Approach to IBNR Allocation

This paper presents a "Modified Bornhuetter-Ferguson" approach to allocating IBNR. Essentially, this approach involves a credibility-weighted average of the earned premium and case-incurred loss (or loss adjustment expense) allocation bases. This combined allocation provides a more reasonable and stable result than methods based solely on either earned premium or case-incurred loss. Moreover, the method is easy to automate, explainable in intuitive terms, and does not require the use of an "off-balance" adjustment factor.