Which two components make up IBNR reserves?

The correct answer identifies the two key components of IBNR (Incurred But Not Reported) reserves: Pure IBNR and Broad or Bulk IBNR.

Pure IBNR refers specifically to the reserves set aside for claims that are expected to occur but have not yet been reported to the insurer. This component focuses on anticipated losses that have occurred within the coverage period but remain unreported due to delays in the claims process.

Broad or Bulk IBNR, on the other hand, encompasses additional reserves that may cover future loss development on reported claims as well as any claims that could emerge from known incidents. This component allows insurers to account for the uncertainty in loss estimation and the potential for claim values to rise after they have been reported.

Together, these components reflect the insurer's strategy for managing incurred losses that have yet to be fully quantified or reported, ensuring that they have sufficient reserves to cover future claim liabilities. This understanding is critical for accurate financial reporting and maintaining solvency in insurance operations.