Loss ratio predicted before observing claims, derived from pricing or market analysis, used as the anchor in the Bornhuetter-Ferguson method.
The a priori loss ratio (or expected loss ratio, ELR) is an estimate of the expected loss ratio for an accident year before claims develop sufficiently to be statistically reliable. It is derived from the pricing plan (pure premium / expected earned premium), market analyses or a credibility-weighted average of prior years. It is the central parameter of the Bornhuetter-Ferguson method: for recent accident years where data is sparse, the a priori serves as the expert prediction. Its quality directly determines the reliability of BF reserves. An overoptimistic a priori leads to systematic under-reserving; overly conservative, to over-reserving. Annual a priori revision is a major actuarial judgment exercise.
Accident year 2024, a priori LR = 68% (from 2024 pricing plan). After 12 months of development, observed LR = 52%. BF weights the two according to % developed (30%) → a priori still dominates.
a priori loss ratio, expected loss ratio, loss ratio attendu, ELR, expected claims ratio