Reserves are funds set aside for IBNR; which statement is accurate?

Reserves are funds set aside for IBNR; which statement is accurate?

• A. Reserves are funds set aside for IBNR, usually 1.5x expected claims.
• B. Reserves are funds used to pay marketing expenses.
• C. Reserves are funds set aside to cover taxes.
• D. Reserves are funds to cover administrative expenses.

Answer: (A)

Reserves for IBNR are funds set aside to cover claims that have already occurred but haven’t yet been reported or settled. This ensures the insurer can pay those latent claims as they materialize, accounting for delays in reporting and the uncertainty of future claim development. The statement aligns with this purpose by identifying reserves as IBNR and giving a typical multiplier (1.5x of expected claims) used in practice to estimate the needed amount. The other options describe funds for marketing expenses, taxes, or administrative costs, which are unrelated to reserving for unpaid or unreported claims.

Reserves for IBNR are funds set aside to cover claims that have already occurred but haven’t yet been reported or settled. This ensures the insurer can pay those latent claims as they materialize, accounting for delays in reporting and the uncertainty of future claim development. The statement aligns with this purpose by identifying reserves as IBNR and giving a typical multiplier (1.5x of expected claims) used in practice to estimate the needed amount. The other options describe funds for marketing expenses, taxes, or administrative costs, which are unrelated to reserving for unpaid or unreported claims.