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📊 '''Incurred but not reported''' (IBNR) represents an estimate of [[Definition:Claims|claims]] that have already occurred as of a given valuation date but have not yet been reported to the [[Definition:Insurer|insurer]]. It is one of the most consequential concepts in insurance accounting and [[Definition:Actuarial science|actuarial science]], sitting at the heart of how insurers establish adequate [[Definition:Loss reserves|loss reserves]]. Every insurance company, regardless of jurisdiction or line of business, must grapple with the reality that a gap exists between the moment a loss event takes place and the moment the affected [[Definition:Policyholder|policyholder]] or [[Definition:Claimant|claimant]] files a claim. For short-tail lines like personal auto, this gap might be days or weeks; for long-tail lines such as [[Definition:Liability insurance|liability insurance]], [[Definition:Professional indemnity insurance|professional indemnity]], or [[Definition:Asbestos|asbestos]]-related coverage, it can stretch across years or even decades.

🔧 Actuaries estimate IBNR using a variety of statistical and judgmental methods. The most widely applied technique is the [[Definition:Chain-ladder method|chain-ladder method]], which uses historical patterns of claim development to project how current [[Definition:Accident year|accident years]] will mature over time. Other approaches include the [[Definition:Bornhuetter-Ferguson method|Bornhuetter-Ferguson method]], which blends actual experience with an a priori [[Definition:Expected loss ratio|expected loss ratio]], and frequency-severity models that project claim counts and average costs separately. The choice and calibration of method varies by line of business, data availability, and regulatory regime. Under [[Definition:US GAAP|US GAAP]], IBNR is typically reported on an undiscounted basis for property-casualty insurers, whereas [[Definition:IFRS 17|IFRS 17]] requires the use of discounted, probability-weighted estimates and a separate [[Definition:Risk adjustment|risk adjustment]]. [[Definition:Solvency II|Solvency II]] technical provisions likewise demand a best-estimate calculation on a discounted basis. In all frameworks, the IBNR estimate is updated at each reporting period as new information about reported claims, legislative changes, and economic conditions emerges.

⚠️ Getting IBNR wrong can have severe consequences. Underestimating IBNR leads to [[Definition:Reserve deficiency|reserve deficiency]], which flatters current-period profitability but stores up future losses that must eventually be recognized — potentially destabilizing an insurer's [[Definition:Solvency|solvency]] position and eroding stakeholder trust. Overestimating IBNR, while more conservative, unnecessarily ties up [[Definition:Capital|capital]] and depresses reported earnings, potentially making the insurer less competitive. High-profile reserve strengthening events, where an insurer announces a large addition to prior-year IBNR, have historically triggered sharp stock price declines, [[Definition:Credit rating|credit rating]] downgrades, and regulatory interventions. For this reason, independent [[Definition:Reserve review|reserve reviews]] — whether conducted by appointed actuaries, external consultants, or regulatory bodies — place heavy emphasis on the adequacy and methodology behind IBNR estimates. In the [[Definition:Reinsurance|reinsurance]] market, IBNR is equally critical: [[Definition:Retrocession|retrocessionaires]] and [[Definition:Cedant|cedants]] must agree on reserve development assumptions when structuring [[Definition:Loss portfolio transfer|loss portfolio transfers]] or [[Definition:Run-off|run-off]] transactions.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Loss reserves]]
* [[Definition:Chain-ladder method]]
* [[Definition:Bornhuetter-Ferguson method]]
* [[Definition:Risk adjustment]]
* [[Definition:Reserve deficiency]]
* [[Definition:Actuarial science]]
{{Div col end}}

Definition:Incurred but not reported - Revision history

PlumBot: Bot: Creating definition