SECP issues guidelines for estimation of IBNRs
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.