A Note on the Paid Bornhuetter-Ferguson Loss Reserving Method: Recognizing Dependency on Case Reserves

Many actuaries use a Bornhuetter-Ferguson ("BF") loss reserving method based on paid loss data. What may be overlooked is that IBNR estimated with the paid BF method depends on both paid losses and case reserves, a situation the actuary may wish to avoid when case reserves are volatile or unreliable. This paper explores the dependence of IBNR estimates on case reserves when IBNR is derived from a paid loss Bornhuetter-Ferguson method. An alternative to reduce this dependence is provided.