Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p15
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 37803–40546

contracts written on a claims incurred basis, claims arise from insured events that occur during the insurance contract period.  Some events will occur and give rise to claims that are reported to the insurer and settled within the same reporting period.  Other reported claims may be unsettled at the end of a particular reporting period.  In addition, there may be events that give rise to claims that, at the end of a reporting period, have yet to be reported to the insurer.  The latter are termed claims incurred but not reported (IBNR claims).  The insurer also considers the need to recognise a liability for claims that may be re-opened after the reporting period.
5.2.5 For contracts written on a claims made basis, claims arise in respect of claims reported during the insurance contract period.  The insured event that gave rise to the claim could have occurred in a previous period.  While claims made insurance contracts should theoretically only give rise to outstanding claims liabilities and IBNER claims (see paragraph 5.2.10), as claims cannot be incurred but not reported under such a contract, this may not be the case for reinsurers.  A reinsurer may have reinsured a claims made contract on a claims incurred basis.  In this case whilst a loss or other event would be reported to the direct insurer during the period of insurance to generate a valid claim, the reinsurer may not have received information about the claim but would have an IBNR liability.  Similarly, a reinsurer may have issued a claims made reinsurance contract but may need to consider that not all notices of claims may have been reported by the direct insurer.  Insurers and reinsurers should also consider court rulings that may impact on the way claims made contracts are interpreted.
5.2.6 Claims arising from events that occur during a reporting period and which are settled during that same period are expenses of that period.  In addition, a liability and corresponding expense is recognised for reported claims arising from events of the reporting period that have yet to be settled.  This involves a process of estimation that includes assessment of individual claims and past claims experience.
5.2.7 When, based on knowledge of the business, IBNR claims are expected to exist, an estimate is made of the amount of the claims that will arise therefrom.  This involves recognition of a liability and corresponding expense for the reporting period.  As in the case of reported but unsettled claims, an estimate of the amount of the current claims incurred but not reported is based on past experience and takes into account any changes in circumstances, such as recent catastrophic events that may have occurred during the reporting period and