MIME:gcuzzi@colognere=2Ecom on 07/22/98 10:18:07 AM
To: casnet@lists=2Ecasact=2Eorg @ INTERNET=20=
cc: (bcc: Paul Struzzieri/NYRK/M&R)
Subject: Re: This Cape Cod Thing=20=
O=2EK=2E I know what the Bornhuetter-Ferguson reserving method is, and I know
how it got its name=2E I also know what the Cape Cod reserving method is=2E
Would someone tell me how it got its name=2E I've just spent a week on
vacation in Cape Cod and, thankfully, there were no references to any
reserving methods there=2E
Greg C=2E
To: wan
cc: casnet (bcc: Gregory A=2E Cuzzi)
From: michael=2Edubin@milliman=2Ecom
Date: 07/22/98 10:06:04 AM
Subject: Re: This Cape Cod Thing
You're halfway to a descriptive name=2E If we call the BF method the
"expected reserves method" and add, "with a systematic approach to
calculating the expected loss cost" we might have a better name for the
Cape Cod thing=2E
MIME:wan@scruggs=2Ecom on 07/21/98 03:16:46 PM
To: casnet@lists=2Ecasact=2Eorg @ INTERNET cc: (bcc: Michael Dubin/ATLA/M&R)
Subject: This Cape Cod Thing
There is a reason why this Cape Cod Thing doesn't have
a descriptive name=2E=2E=2E=2Eit has too many components=2E It is essentially the
Bornhuetter-Fergason method with
a systematic approach for calculating the Expected Loss
Cost=2E
In many cases, when using the BF method, we do not
have an external source for the expected loss costs=2E
With no other alternative, we frequently use the utimate loss costs implied
by the corresponding development method=2E In doing so, we are giving full
weight to the indicated loss costs of the most recent
accident periods=2E
The Cape Cod method says that we should reduce the weight
for recent accident periods and it does so as follows=2E
For the Development Method, the Indicated Loss Cost for an
accident period is calculated as ILC =3D LDF X AMT / EXP, where
LDF is the ultimate development factor;
AMT is the current amount; and
EXP is the exposure=2E
When we calculate a weighted average of these loss costs, we
use EXP as the weights=2E
For the Cape Code Method, the Undeveloped Loss Cost for an
accident period is calculated as ULC =3D AMT / (EXP/LDF)=2E
We get the same loss costs for each accident period, but
we do not get the same weighted average of the loss costs=2E
Here the weights are (EXP/LDF)=2E We would use this weighted
average loss cost as the expected loss cost for all accident
periods=2E
With the Cape Cod method, we also have to adjust exposures
for changes in frequency and severity=2E
The "Generalized Cape Cod" method also calculates a unique
expected loss cost for each accident period as a weighted average
of the Undeveloped Loss Costs of the surrounding accident
periods=2E It adds another weighting factor that decays
exponentially=2E
I hope this helps=2E
Bill Niemczyk
Visit the CAS Web Site at http://www=2Ecasact=2Eorg
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