SECP is­sues guide­lines for es­ti­ma­tion of IBNRs

The Pak Banker - - COMPANIES/BOSS -

IS­LAM­ABAD: The Se­cu­ri­ties and Ex­change Com­mis­sion of Pak­istan (SECP) has is­sued the guide­lines for the non-life in­sur­ance com­pa­nies on method­ol­ogy for es­ti­ma­tion of in­curred but not re­ported (IBNR) claims re­serve, ap­pli­ca­ble with ef­fect from July 1, 2016. The IBNR claims re­fer to those claims which have been in­curred dur­ing the pe­riod cov­ered by the in­sur­ance pol­icy, but have not been re­ported to the in­sur­ance com­pany dur­ing the ac­count­ing year, hence, mak­ing it dif­fi­cult for the in­sur­ance com­pany to ad­e­quately pro­vide for such losses, a state­ment of SECP said here on Thurs­day. The guide­lines pre­scribe a stan­dard method for the es­ti­ma­tion of IBNR claims re­serve and will bring about stan­dard­iza­tion and uni­for­mity across the non­life in­sur­ance sec­tor in re­spect of such es­ti­ma­tion.

The guide­lines are aimed at en­sur­ing the ad­e­quacy of the re­serves by pre­scrib­ing stan­dard method­ol­ogy so as to pro­tect the in­sur­ance com­pany from the ad­verse fi­nan­cial im­pact in case of unan­tic­i­pated IBNR losses. So far, in­sur­ance com­pa­nies have been us­ing dif­fer­ent meth­ods to es­ti­mate the IBNR claims re­serve, which have been found to be largely in­ad­e­quate, as re­vealed by the find­ings of an in­dus­try-wide sur­vey con­ducted by the SECP. The guide­lines also pro­vide for use of al­ter­na­tive method other than the pre­scribed method, in case where the in­sur­ance com­pany be­lieves that the al­ter­na­tive method bet­ter pre­dicts the pe­cu­liar­i­ties of the par­tic­u­lar risk, based on the in­dus­tries past ex­pe­ri­ence and fu­ture out­look.

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