A Three-Way Credibility Approach to Loss Reserving

Two ways of estimating ultimate incurred losses are loss based and exposure based. The former uses a factor applied to losses emerged to date; the latter bases the loss estimate on the exposure, and ignores emerged losses. A hybrid is the Bornheutter–Ferguson method, which adds the emerged losses to an appropriate percentage of the exposure based estimate. This paper considers a weighting of these three estimators using credibility concepts. It generalizes the results of I. Robbin's paper, `A Bayesian Credibility Formula for IBNR Counts' in PCAS 1986. Author Keywords: Loss reserving; Credibility concept