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📊 '''Incurred loss''' is the total financial cost an [[Definition:Insurance carrier | insurer]] recognizes for [[Definition:Insurance claim | claims]] during a given period, combining amounts already paid to claimants with the estimated [[Definition:Loss reserve | reserves]] still outstanding for claims that have been reported but not yet settled. Expressed as a formula, incurred losses equal paid losses plus the change in outstanding reserves — a figure that appears on virtually every page of an insurer's financial and [[Definition:Actuarial analysis | actuarial]] reporting.

🧮 Consider a carrier that starts the quarter with $50 million in outstanding [[Definition:Case reserve | case reserves]], pays $30 million in [[Definition:Insurance claim | claims]] during the quarter, and ends with $45 million still reserved. The incurred loss for that quarter is $25 million: the $30 million paid minus the $5 million net decrease in reserves. This accounting treatment ensures that the financial statements capture the full economic cost of losses as they develop, not merely the cash that has left the building. [[Definition:Actuary | Actuaries]] further refine the picture by incorporating estimates for [[Definition:Incurred but not reported (IBNR) | incurred-but-not-reported (IBNR)]] claims — losses that have occurred but have not yet been filed — which is especially significant in long-tail [[Definition:Casualty insurance | casualty]] lines where years can pass between an event and a formal claim.

📈 Accurate incurred-loss tracking is the backbone of meaningful [[Definition:Loss ratio (L/R) | loss-ratio]] analysis and, by extension, sound [[Definition:Rate | pricing]] decisions. If reserves are set too low, incurred losses appear artificially modest, inflating apparent profitability and tempting [[Definition:Underwriter | underwriters]] to price below true cost. When those reserves are later strengthened — a process called adverse [[Definition:Reserve development | development]] — the correction hits the [[Definition:Calendar year | calendar-year]] results and can erase years of reported gains. Disciplined reserving, regular independent [[Definition:Reserve study | reserve reviews]], and transparent reporting of incurred-loss trends are therefore central to maintaining the trust of [[Definition:Reinsurance | reinsurers]], [[Definition:Rating agency | rating agencies]], and regulators alike.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Loss reserve]]
* [[Definition:Incurred but not reported (IBNR)]]
* [[Definition:Loss ratio (L/R)]]
* [[Definition:Reserve development]]
* [[Definition:Paid loss]]
* [[Definition:Case reserve]]
{{Div col end}}

Definition:Incurred loss - Revision history

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