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📉 '''Net incurred claims''' represents the total cost of [[Definition:Claim | claims]] an [[Definition:Insurance carrier | insurer]] bears after deducting recoveries from [[Definition:Reinsurance | reinsurance]], [[Definition:Subrogation | subrogation]], and salvage, encompassing both claims that have already been paid during a reporting period and changes in [[Definition:Reserve | reserves]] for claims that have been reported but not yet settled ([[Definition:Case reserve | case reserves]]) and claims that have been incurred but not yet reported ([[Definition:Incurred but not reported (IBNR) | IBNR]]). It is one of the most closely watched figures in insurance financial reporting because it captures the true economic cost of the risks an insurer has retained on its own balance sheet.

⚙️ The calculation starts with gross incurred claims — the sum of claims paid plus the change in gross outstanding claims reserves during the period — and then subtracts the reinsurer's share of those amounts. For a [[Definition:Property and casualty insurance | property and casualty]] insurer that cedes a portion of its catastrophe exposure through an [[Definition:Excess of loss reinsurance | excess of loss treaty]], for instance, a large hurricane loss would first be recorded at its gross amount, and then the portion recoverable from the reinsurer would be netted off to arrive at net incurred claims. The reserve component makes this figure inherently forward-looking and subject to actuarial judgment: under [[Definition:IFRS 17 | IFRS 17]], the fulfilment cash flows include an explicit [[Definition:Risk adjustment | risk adjustment]] for non-financial risk, while under [[Definition:US GAAP | US GAAP]] and many local statutory frameworks, reserves are set using best estimates with varying degrees of embedded prudence. Reserve development from prior accident years — where earlier estimates prove either deficient or redundant — also flows through net incurred claims, sometimes materially altering the reported figure. In long-tail lines such as [[Definition:Liability insurance | liability]] or [[Definition:Workers' compensation insurance | workers' compensation]], reserve revisions can persist for years or even decades after the policies were written.

💡 Net incurred claims is the numerator of the [[Definition:Loss ratio | loss ratio]], arguably the single most important performance metric in general insurance. When an insurer reports a deterioration in net incurred claims relative to [[Definition:Earned premium | earned premiums]], it signals either adverse claims experience, reserve strengthening, or both — any of which can prompt questions from investors, [[Definition:Rating agency | rating agencies]], and regulators. Trends in net incurred claims also inform [[Definition:Pricing | pricing]] cycles: persistent increases across an industry segment typically precede [[Definition:Hard market | hard market]] conditions as insurers seek to restore profitability. For group-level analysis, the net figure — rather than the gross — reveals the extent of an insurer's reliance on reinsurance, making it essential for assessing [[Definition:Counterparty credit risk | counterparty credit risk]] concentration. Whether an insurer operates in the U.S., Europe, or Asia, the discipline of accurately measuring and disclosing net incurred claims remains foundational to maintaining market credibility and regulatory compliance.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Loss ratio]]
* [[Definition:Incurred but not reported (IBNR)]]
* [[Definition:Case reserve]]
* [[Definition:Reinsurance recovery]]
* [[Definition:Earned premium]]
* [[Definition:Reserve development]]
{{Div col end}}

Definition:Net incurred claims - Revision history

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