Incurred but not reported

Category: Actuarial fundamentals · Reviewed by Amy Price, Account Executive · Last reviewed

Incurred but not reported

Incurred but not reported (IBNR) losses are claim events that have occurred during a coverage period but have not yet been reported to the insurer at the reserving date. They represent a real liability — the insured event has happened — but the magnitude must be estimated.

“Pure” vs “broad” IBNR

• Pure IBNR — claims fully unknown to the insurer.
• Broad IBNR — pure IBNR plus IBNER (incurred but not enough reported) — the inadequacy of case reserves on known claims.

UK actuarial practice (and Solvency II technical provisions) typically uses the broad definition, though disclosure may separately show case reserves, IBNR and IBNER.

Drivers of IBNR magnitude

• Reporting lag (long-tail lines have material IBNR for years; short-tail lines clear within months).
• Latency periods (asbestos, abuse, occupational disease produce decades-long IBNR).
• Notification regimes (claims-made vs occurrence triggers).
• Reinsurance reporting requirements.

Solvency II treatment

Under Article 77 of the Solvency II Directive, technical provisions equal the best estimate plus a risk margin. IBNR is captured within the best estimate and developed using actuarial methods (chain ladder, Bornhuetter-Ferguson, expected loss ratio, frequency-severity).

References

• Solvency II Directive 2009/138/EC, Article 77.
• IFoA. General insurance reserving practice.
• PRA Insurance Rulebook, Technical Provisions.

Cross-references

• IBNR (acronym)
• IBNER
• Outstanding claims reserve
• IBNR reserve

Maintained by Matt Bartlett, Director, Apex Insurance Brokers Limited. FCA FRN 724952. Companies House 07014570.