Not every claim is reported the day it happens. IBNR reserve is the amount an insurer sets aside for claims that have been incurred but not yet reported to the company, plus development on already reported claims that may settle for more than currently reserved.

Actuaries estimate IBNR using triangle methods, frequency-severity models, and judgment about reporting patterns. Long-tail lines such as liability and workers’ compensation carry substantial IBNR; short-tail property lines carry less. The reserve is a major component of total loss reserves on the balance sheet.

Underestimating IBNR overstates current profit and can leave the insurer undercapitalized. Overestimating ties up capital unnecessarily. Regulators and auditors scrutinize IBNR methods and assumptions. Regular re-evaluation as claims develop keeps the estimate aligned with emerging experience.

• Reserve for incurred but not reported claims
• Includes development on known claims
• Estimated by actuarial methods
• Critical to accurate financial reporting