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Legislation
 
IBNR: Changes from 30 Sept 2010

21/09/2010

 A new directive from the Treasury gives management the discretion to choose a best estimate for their IBNR (estimate of Incurred But Not yet Reported claims reserve) from a range of reasonable values.

Broadly speaking, five different methods are prescribed:

  • Standard Chain Ladder
  • Naive Loss Ratio
  • Cape Cod
  • Frequency/Severity
  • Munich Chain

The definitions of these, and spreadsheets to be used, are provided to companies by the Treasury via the SGS electronic system. There has been a lot of debate in the industry as to which should beused. In fact one-size cannot fit all, due to differences in claims profiles between branches and between companies within branches.

Management can choose, during Q3 and Q4 which method suits their data best; this choice can be made per branch, but watch out - once made you have to stick to your choice for 3 years!

Some advice on choosing the best estimate method

Tags: claims | IBNR | reserves |
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