The Actuary and IBNR

Incurred But Not Reported loss reserves (hereinafter referred to as IBNR reserves) represent vast sums of money, exceeding $100,000,000 for a number of U.S. property and liability insurers. Nevertheless, the subject has had little attention in the literature of insurance, especially the Proceedings of the Casualty Actuarial Society. Although the situation is changing in recent times, the lack of articles, discussions and other related means of presenting the theory and practice of IBNR reserves leads one to conclude that the subject has suffered from neglect over the years and companies have not been allocating sufficient time and talent to this subject. In an attempt to generate some actuarial interest in this important subject, the authors will describe some theories concerning IBNR reserves which have evolved over the years of handling one of the largest such reserve structure in the United States. Interestingly enough, the theories discussed in this paper have the added advantage of being adaptable to small or medium size insurers and can also apply to areas where credible statistics are unavailable, areas such as reinsurance, casualty umbrella business, etc.