What is Cape Cod accounting?

Cape Cod accounting refers to a specialized actuarial method used primarily in the insurance industry to estimate incurred but not reported (IBNR) claims. It is a hybrid technique that combines elements of the paid loss development method and the Bornhuetter-Ferguson method. The Cape Cod method uses both exposure data and loss development factors to provide more stable estimates, especially in situations where data is sparse or volatile. This approach is particularly useful for lines of business with limited claims history, helping actuaries to produce reasonable reserve estimates.