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reserves for unpaid losses. A property and casualty company's
loss reserve is the amount that is needed to make all future
payments on claims that have already been incurred. Utah Code
Ann. sec. 31A-17-402(1) (1997) requires insurers to report a
liability for unpaid losses equal to "the estimated amount
necessary to pay all its unpaid losses and claims incurred on or
prior to the date of statement, whether reported or unreported,
together with the expense of adjustment or settlement of the loss
or claim".
The reserve for unpaid losses3 includes all incurred losses.
Incurred losses include insured events for which a claim has been
filed (reported losses), and insured events for which no claim
has been filed with the company; i.e., incurred but not reported
(IBNR) losses.
The first step in estimating loss reserves is to estimate
the total amount that will ultimately be paid for a coverage year
for all claims existing on a given date (ultimate losses).
Ultimate losses equal paid losses plus an estimate of unpaid
losses at the end of the year. Unpaid losses are generally
estimated not later than the year in which the insured event
giving rise to the loss occurred (the accident year).4 In
3 Unless otherwise indicated, we use the terms "loss" and
"unpaid loss" to include both losses and loss adjustment
expenses; that is, amounts paid to defend or settle claims.
4 Unless otherwise indicated, we use the term "coverage
(continued...)
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Last modified: May 25, 2011