DEFINITION of Calendar Year Accounting Incurred Losses
Calendar year accounting incurred losses is a term used in the insurance industry to describe the losses incurred by an insurance company during a calendar year. Losses incurred for an insurance company occur through the payment of old claims as well as any new claims, the reevaluation of claims already on the company's books at the beginning of the year and changes in loss reserves in a particular calendar year.
BREAKING DOWN Calendar Year Accounting Incurred Losses
Calendar year accounting incurred losses for an insurance company refer to any amount of money that the insurer either pays or can no longer count as an asset on their books.
Sources of Incurred Losses
Insurance claims. An insurance claim represents a request from a policyholder for coverage or compensation for a covered loss or policy event. The insurance industry views the amounts paid out to claimants as losses because the money spent to pay claims is money that is going out of the company as opposed to remaining with it, and that money is no longer an asset of the insurance company.
Reevaluation of claims. Reevaluation of claims occur when, after a review of the insurer's insurance claims already in process, the insurer determines the value of the claims to be greater than or less than the value already recorded in their books. The reevaluation would result in an accounting incurred loss to the insurer if the newly determined value of the claims is higher than the value already recorded.
Changes to loss reserves. Loss reserves are the amount of money budgeted or set aside by the management of an insurance company, at the beginning of the year, for payment of old claims and the anticipated payment of new claims by the company. Regulators require U.S. insurers to maintain loss reserves to cover claims. Requirements for loss reserves are typically set at the state level, but standard levels range from 8% to 12% of the insurers' total revenues. As an insurer's revenues change, the amount that is mandated for loss reserves also changes. Changes to loss reserves would result in an accounting incurred loss if the amount needed for the loss reserves increased.