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Originally Posted by aceventura3
That IBNR is a guess?
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Yes, ace. Because any good actuary will tell you that IBNR is, at the root, a "best guess". It is impossible to accurately predict, as seen with the California regulatory changes for WC in the late 90's.
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I worked for a WC carrier in California during the "crisis", the under reserving issue was more a problem with cash flow underwriting that lead to reserving issues. In addition their were some major regulatory changes that caught many off guard. Most of the problems were with actual reported losses where costs got out of control as opposed to unreported losses that were later reported.
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I don't know what you did for the WC carrier, but clearly it wasn't anything that dealt with the issue at had. It is impossible to predict IBNR losses prior to the close of the period in question because you do not know the number and types of accounts in question, nor do you know the premium dollars generated. Budgets are rarely accurate. "Cash flow underwriting" is an irrelevant issue because the premium dollars are already booked and earning income when reserves are set. That is simply a poor underwriting decision. The IBNR problems in California weren't with individual claims that weren't reported (you should know full well that once the books close on a policy year for WC, the claims shut off within 60 days), they were with new treatments and payments that had to be made as dictated by state law.
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Like I said there is a science to it. If a company gets it wrong there are consequences. and, like I wrote there are different motivators that in the end balance each other out, if a company takes a short-term view and under reports IBNR or reserves to show profits, their financial strength suffers and they will run into regulatory and pricing issues.
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And like I said, you don't have the training necessary to understand the intricacies of an insurance carrier balance sheet, specifically the IBNR line item to know what it means and whether or not it's hiding past sins or is a current issue. I'm not claiming that ability either, but I do fully recognize the complexity of the issue and am trying, most likely in vain, to get you to realize that you don't either.