A Probabilistic Model for IBNR Claims

Develops a stochastic model for use in IBNR estimation. Abstract: IBNR reserves are presented as a stochastic variable. The model presented shows explicitly that the main factors contributing to IBNR reserves are number of claims, severity, and report lag distributions. The mean and variance of IBNR reserves are derived. Procedures to obtain an IBNR confidence interval are discussed. Two examples are provided on the use of the model. Suggestions are made as to how to obtain model parameters from actual insurance data.