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📋 '''Liability for incurred claims (LIC)''' is the second of the two balance-sheet components that [[Definition:International Financial Reporting Standard 17 (IFRS 17) | IFRS 17]] uses to present an insurer's [[Definition:Insurance contract | insurance contract]] obligations, complementing the [[Definition:Liability for remaining coverage (LRC) | liability for remaining coverage]]. The LIC captures the insurer's obligation to pay [[Definition:Claim | claims]] for [[Definition:Insured event | insured events]] that have already occurred, including events that have been reported but not yet settled and those that have been [[Definition:Incurred but not reported (IBNR) | incurred but not yet reported]]. It is the IFRS 17 analogue of the traditional [[Definition:Outstanding claims reserve | outstanding claims reserve]], though measured on a fulfilment-value basis.

🔍 Measurement of the LIC follows the general [[Definition:Fulfilment cash flow | fulfilment cash flow]] framework: the insurer estimates the present value of future cash outflows needed to settle incurred claims, adds a [[Definition:Risk adjustment for non-financial risk | risk adjustment for non-financial risk]], and applies an appropriate [[Definition:Discount rate | discount rate]]. Unlike the [[Definition:Liability for remaining coverage (LRC) | LRC]], the LIC contains no [[Definition:Contractual service margin (CSM) | contractual service margin]] because the related coverage has already been provided. Changes in the LIC from period to period — whether from new incurrals, revised estimates, or actual settlements — flow through the [[Definition:Insurance service expense | insurance service expense]] line, directly affecting the [[Definition:Insurance service result | insurance service result]].

⚖️ Accurate estimation of the LIC is especially consequential for carriers writing [[Definition:Long-tail liability | long-tail lines]] such as [[Definition:Casualty insurance | casualty]], [[Definition:Professional liability insurance | professional liability]], and [[Definition:Workers' compensation insurance | workers' compensation]], where claims can take years or even decades to resolve. Because [[Definition:International Financial Reporting Standard 17 (IFRS 17) | IFRS 17]] mandates explicit discounting and a transparent risk adjustment, the LIC gives [[Definition:Investor | investors]] and [[Definition:Insurance regulator | regulators]] a more economically faithful picture of an insurer's outstanding obligations than the undiscounted reserves that many jurisdictions previously permitted. It also makes reserve adequacy — and any [[Definition:Reserve development | reserve development]] — considerably more visible in the financial statements.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Liability for remaining coverage (LRC)]]
* [[Definition:Outstanding claims reserve]]
* [[Definition:Incurred but not reported (IBNR)]]
* [[Definition:Risk adjustment for non-financial risk]]
* [[Definition:Fulfilment cash flow]]
* [[Definition:International Financial Reporting Standard 17 (IFRS 17)]]
{{Div col end}}

Definition:Liability for incurred claims (LIC) - Revision history

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