IBNR (incurred but not reported) reserves

What are IBNR reserves?

IBNR stands for incurred but not reported. An IBNR reserve is an estimate of the cost of claims for losses that occurred before the insurer's balance sheet date but that policyholders have not yet notified. A health insurer closing its books on 31 March will have customers who were hospitalised in March but whose claims arrive in April or later. A liability insurer may not hear of an injury claim for years. IBNR puts the expected cost of those claims into the accounts of the period in which the loss happened.

A related reserve is IBNER (incurred but not enough reported), which covers the expected increase in claims already reported, where the current estimate is likely to prove too low. Together with reserves for known outstanding claims, IBNR and IBNER make up an insurer's claims reserves.

How IBNR is estimated in India

IBNR is estimated by actuaries, mainly for general and health insurers, though life insurers also hold reserves for unreported deaths and group claims. In India:

• The appointed actuary of a general or health insurer is responsible for estimating and certifying IBNR and IBNER, which feed into the solvency statement.
• The governing rules are the IRDAI (Actuarial, Finance and Investment Functions of Insurers) Regulations, 2024 and IRDAI's Master Circular on Actuarial, Finance and Investment Functions of Insurers (17 May 2024).
• Actuaries follow the Institute of Actuaries of India's Actuarial Practice Standard 21 for general insurance reserving. Insurers' accounting policies cite both.
• Estimates are made by line of business, using claims development data (how claims from each accident year have emerged over time).

Common methods include the chain ladder method, which projects future claims from past development patterns, the expected loss ratio method, which applies an assumed claims ratio to earned premium, and the Bornhuetter-Ferguson method, which blends the two. Actuaries choose and combine methods depending on how stable and long the data is.

Worked example (illustrative numbers)

A health insurer's past data shows that, on average, claims reported by the end of the accident year are 80% of the final total for that year. For the year just ended, ₹400 crore of claims have been reported.

• Expected ultimate claims = 400 ÷ 0.80 = ₹500 crore
• IBNR = 500 minus 400 = ₹100 crore

If the insurer also expects reported but unsettled claims to cost ₹15 crore more than current case estimates, IBNER is ₹15 crore.

Why IBNR matters

• It drives the claims ratio. IBNR is part of net incurred claims. Raising or releasing IBNR changes the incurred claims ratio and the combined ratio, sometimes sharply in a single quarter.
• It affects solvency. Claims reserves are liabilities in the solvency calculation. Under-reserving flatters solvency and profit until claims arrive.
• It is a judgement. Small changes in assumptions for long-tail lines such as motor third party, where court awards can take years, can move reserves by large amounts. Reserve strengthening or release is a frequent explanation in insurers' results commentary.
• Accounting is changing. Under Ind AS 117, being adopted by insurers from 2026-27 and 2027-28, claims liabilities are measured as discounted best estimates with an explicit risk adjustment, which changes how IBNR appears in the accounts.

What IBNR means for distribution

• Late claim intimation raises IBNR. When claims reach the insurer slowly, actuaries must hold more IBNR and price for uncertainty. Brokers, TPAs and partners who ensure prompt claim intimation help keep reserves and prices accurate.
• Group health renewals reflect IBNR. When an insurer quotes a renewal for an employer, it uses the account's claims including an IBNR load for claims not yet reported. Brokers who understand this can explain why the insurer's claims ratio for the account differs from the employer's own count of paid claims.
• Portfolio quality is judged on incurred, not paid, claims. A partner's book can look profitable on paid claims early in a year and less so once IBNR is added. Payout and pricing discussions should use incurred figures.
• Motor third party is the long tail. Dealers and motor partners should expect insurers to be cautious on TP-heavy portfolios because their IBNR is large and uncertain.