Here’s a crude graphic that breaks down the basic anatomy of a claim. Actuaries typically work at the aggregate level, which means all the claims are grouped together by policy year.
Incurred – This is the current, reported value of the losses. If the claim is relatively young and open, this amount is subject to change and usually develops to a higher number.
Paid – This is the current amount that has been paid to the claimant.
Case Reserves – This is the known amount that has not been paid yet. Also called IBNP (Incurred But Not Paid).
IBNR – Incurred But Not Reported. This is where actuaries come in to determine the estimated amount of the claims that have not yet been reported. There are different interpretations to the terminology – in theory it is the amount that has not yet been reported due to reporting lag, but in practice it also involves the remaining amount of undeveloped claims, reopened claims, future claims, and more. When the claim is closed (the Incurred amount is finalized and everything has been paid out), IBNR will be zero.
Outstanding – The sum of IBNR and Case Reserves. This is the total estimated amount of losses that have not been paid yet, and this may be used to asses profitability or to negotiate collateral.
Ultimate – This is the final amount of the claim once it has been fully developed and paid out.
There are other details like recoveries and retentions which are not hard to grasp but would overcomplicate this chart.
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