Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p16
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 40302–43223

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 changes in the volume or mix of insurance contracts underwritten, that may affect the pattern of unreported claims.
5.2.8 Some insurers use estimations or formulae, related to the amount of outstanding claims and based on the past experience of the insurer and the industry, to arrive at an estimate of direct and indirect claims handling costs.
5.2.9 Claims expense and the outstanding claims liability are adjusted on the basis of information, including re-opened claims, that becomes available after the initial recognition of claims, to enable the insurer to make a more accurate estimate of the ultimate cost of settlement.  This is often referred to as claims development.  As is the case with other liabilities, the effect of the adjustments to the liability for outstanding claims and to claims expense is recognised in the statement of comprehensive income when the information becomes available.
5.2.10 Where further information becomes available about reported claims and reveals that the ultimate cost of settling claims has been under-estimated, the upwards adjustment to claims expense and to the liability for outstanding claims is often referred to as claims incurred but not enough reported (IBNER claims).  Where further information reveals that the ultimate cost of settling claims has been over-estimated, the adjustment is sometimes referred to as negative IBNER claims.
5.2.11 Appropriate allowance is made for future claim cost escalation when determining the central estimate of the present value of the expected future payments.  Future claims payments may increase over current levels as a result of wage or price inflation, and as a result of superimposed inflation (cost increases) due to court awards, environmental factors or economic or other causes.
5.2.12 With inwards reinsurance claims the reinsurer will receive periodic advices from each cedant.  These may include aggregate information relating to the claims liability.  The reinsurer measures its outstanding claims liability on the basis of this information and its past experience of the claims payments made under reinsurance arrangements.  The reinsurer also considers market knowledge of losses and other events such as hailstorms or earthquakes.

6 Discount Rates

6.1 The outstanding claims liability shall be discounted for the time value of money using risk-free discount rates that are based on current observable, objective rates that relate to the nature, structure and term of the future obligations.
6.1.1 The discount rates adopted are not intended to reflect risks inherent in the liability cash flows, which might be allowed for by a reduction in the discount rate in a