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Bornhuetter Ferguson Technique

Bornhuetter-Ferguson Technique


Bornhuetter-Ferguson Technique — an actuarial technique for developing losses to estimate their ultimate amount. An amount for expected unreported losses (derived using the reciprocal of the loss development factor (LDF)) is added to actual reported losses to obtain the estimated ultimate loss for a given accident year. The technique is most useful when actual reported losses for an accident year are a poor indicator of future incurred but not reported (IBNR) losses for the same accident year, as is often the case when there is a low frequency of loss but a very high potential severity.

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