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Loss Map

This blog introduces a graphic that shows the pieces that make up “Ultimate Losses.”  The ultimate losses of a policy period will typically not be known for many years.  Actuaries are hired to estimate ultimate losses to help a company use appropriate reserve amounts for planning and financial statement purposes.
Loss Map
Here are some definitions for the terms contained on the “Loss Map” graphic:

(Note: these terms are also defined in the booklet “Actuarial Advantage” which is a free resource found in our portal at  www.SIGMAactuary.com/resources)

Ultimate Losses– The estimate of the ultimate value of claims for a policy period.

Incurred Losses– A statement of the loss amount for a policy period that includes both paid losses and unpaid case reserves.

IBNR–This value includes losses for claims that occurred during the policy period that have not been reported. IBNR also includes development on known claims. Most of the IBNR tends to be development on known claims.

Paid Losses– A statement of the loss amount for a policy period that includes only the amount actually paid on the claims.

Case Reserves– A loss amount budgeted for future payments on reported claims.

Incurred But Not Reported – This value includes losses for claims that occurred during the policy period that have not been reported.

Development on Known Claims– This value includes additional losses for claims that occurred during the policy period that have been reported.

The phrase “Incurred But Not Reported” is used twice due to how the definition has evolved.

As always, please comment or email us your thoughts and comments to TLC@SIGMAactuary.com

© 2012 SIGMA Actuarial Consulting Group, Inc.

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Timothy L. Coomer, Ph.D.

About Timothy L. Coomer, Ph.D.

Dr. Coomer has a Bachelor of Engineering Degree with a double major in Mechanical Engineering and Mathematics from Vanderbilt University. He holds a Masters in Business Administration with a concentration in Finance from the Owen Graduate School of Management at Vanderbilt University and received his PhD from the Spears School of Business at Oklahoma State University. He founded Specific Software Solutions, LLC (1990) and developed the ModMaster Suite of software products. Dr. Coomer also co-founded SIGMA Actuarial Consulting Group, Inc. (1995). He presently serves as Chief Executive Officer of SIGMA and retired from Specific Software Solutions, LLC in 2010 after selling the business to Zywave, Inc. Dr. Coomer is now focusing on leading SIGMA’s RISK66.com effort along with traveling to meet brokers and clients around the country.

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