Reading guide
How to read a loss run: paid, reserve, incurred, ALAE and valuation date
A loss run has little prose and many columns. Each column has a specific meaning, and a few of them change what the others add up to. These definitions are general. Where your carrier's report says something different about its own figures, the report is the authority.
Definition
What a loss run is
A loss run is a report from an insurance carrier, or from its claims administrator, that lists the claims reported under one or more policies over a period. For each claim it gives the dates, a status, and the amounts paid, reserved and incurred as of a stated valuation date. It is the standard record of an insured's claims history, and underwriters ask for it when they price a new submission or a renewal.
The report belongs to the carrier. A broker's job is to collect one from every carrier the insured has used for the years in question, make sure each is recent enough, and put the claims in a form an underwriter can compare.
Terms
The terms on a loss run, defined
- Policy period (term)
- The effective and expiration dates of one policy. A loss run groups claims by policy period, and a multi-year loss run shows one block per period. Under an occurrence policy a claim belongs to the period in which the loss happened. Under a claims-made policy it belongs to the period in which the claim was first made.
- Valuation date (valued as of)
- The date as of which every amount on the report is measured. Payments are made and reserves are changed over time, so the same claim shows different figures on different valuation dates. A loss run is a snapshot, and the valuation date tells you how old the snapshot is.
- Date of loss and report date
- The date of loss (also called DOL, accident date or occurrence date) is when the event happened. The report date is when it was reported to the carrier. A long gap between the two is something underwriters look at, because late reporting makes a claim harder to settle.
- Status
- Open means the claim still has activity or an outstanding reserve. Closed means the carrier expects no further payments. Reopened means a closed claim has been opened again. Reports use their own words, and some also list incident-only or record-only entries, which are reports of an event with no payment and no reserve. Check whether the claim count includes them.
- Paid loss
- Money already paid to or on behalf of claimants. In workers' compensation the report often splits it into indemnity (wage replacement) and medical. Some reports show paid net of recoveries and some show it gross, so read the report's own note.
- Paid expense (ALAE)
- ALAE is allocated loss adjustment expense: cost that can be tied to a specific claim, such as defense counsel and expert fees. It is shown apart from the loss payment. How a carrier classifies other costs, such as outside adjusters, varies. ULAE, the carrier's general claims overhead, is not assigned to claims and does not appear on a claim-level loss run.
- Reserve (outstanding, O/S)
- The carrier's current estimate of what is still to be paid on an open claim. A reserve is an estimate, not a payment, and the carrier may raise or lower it. A report may state reserves for loss only or for loss and expense, so check the heading.
- Incurred (total incurred)
- Paid plus reserve. It is the carrier's current view of what a claim will cost in total. Some reports include expense in incurred and some print incurred loss and incurred expense in separate columns. Compare years and carriers only on the same basis.
- Recoveries
- Money coming back to the carrier through subrogation, salvage or contribution from another party. Reports show recoveries as negative payments, in their own column, or not at all. A recovery reduces paid and therefore incurred.
- Deductible or self-insured retention
- Some reports show amounts before the insured's deductible or retention, and some show only what the carrier paid above it. The two are not comparable. The heading or a footnote normally says which one the report uses.
- Totals
- Most reports print totals for each policy period and some print a grand total. They are the figures a spreadsheet version of the report has to match.
Worked example
Paid plus reserve is incurred
Two claims from the general liability sample on the home page. The open claim still carries a reserve, so its incurred is more than what has been paid. The closed claim has no reserve, so its incurred equals the payments.
| Claim | Status | Paid loss | Paid expense (ALAE) | Reserve | Incurred |
|---|---|---|---|---|---|
| GL-25-0214 | Open | 14,250.00 | 6,480.00 | 22,000.00 | 42,730.00 |
| GL-25-0066 | Closed | 9,800.00 | 2,310.00 | 0.00 | 12,110.00 |
Read across the first row: 14,250.00 paid, plus 6,480.00 of expense, plus 22,000.00 still reserved, is 42,730.00 incurred. The reserve is the part that can still move.
Steps
How to read a loss run, step by step
The same six steps work for any carrier's report.
- Identify the reportNote the insured, the carrier, the line of coverage and the policy numbers. A report that covers several lines or several policies needs to be read block by block.
- Find the valuation dateIt is normally in the heading or the footer. Decide whether it is recent enough for the market, and ask for a new valuation if it is not.
- Match the headings to the definitionsWork out which column is paid loss, which is expense, which is reserve, and what incurred includes. Do this once per carrier, because the same word can mean different things.
- Read each policy periodLook at the number of claims, the status mix, the largest claims and the period total. Note any period that is missing or shows no claims.
- Check the arithmeticOn each claim, paid plus reserve should equal incurred on the report's basis. Across the period, the claim rows should add up to the printed total.
- Note what the underwriter will ask aboutOpen claims, large reserves, claims reported late, a cluster of the same cause, and anything that does not tie. Have a line ready for each.
Before you rely on it
Common traps
- A stale valuation date. Figures that were right in the spring may be wrong by the time of the submission.
- Two bases in one schedule. One carrier's incurred includes expense and another's does not, so the years look different when they are not.
- A missing period. A year with no claims is sometimes left off the report altogether. Ask for it to be stated.
- A repeated claim. The same claim number printed twice across a page break doubles its amounts. Identical rows are worth removing; rows that differ may be separate coverages on one claim.
- A total struck at another date. If the claim rows and the printed total disagree, the PDF may be internally inconsistent.
- Gross against net. Amounts before a deductible or retention cannot be compared with amounts after it.
- Premium that is not there. Most loss runs do not show premium, so a loss ratio needs your own records.
Comparison
Reading by eye, from a generic conversion, or with LossRun Pro
Reading a loss run well is a matter of checks. The question is who runs them.
| What you need | Manual re-keying | Generic PDF-to-Excel | LossRun Pro |
|---|---|---|---|
| Spotting incurred below paid | Visible only if you test each row. | Not checked. | Flagged on the claim, because a printed incurred below paid points to an error somewhere. |
| Open claims that have aged | Found if you compare each loss date with today's date. | Not checked. | Open or reopened claims more than three years past the loss date are flagged, measured to the valuation date. |
| Checking the arithmetic | A calculator and a printout. | None. | Every claim count and amount summed per policy period and compared with the printed total. |
| Telling which basis incurred uses | Test a row by hand. | Not checked. | Detected from the report's own figures and noted when incurred appears to leave expense out. |
| Comparing carriers | Each report has its own layout. | Each sheet keeps its own layout. | One fixed set of columns across carriers, with the source file named on each row. |
FAQ
Questions about reading a loss run
What is the difference between paid, reserve and incurred?
Paid is money already paid out on a claim. Reserve is the carrier's estimate of what is still to be paid. Incurred is paid plus reserve, the total the carrier currently expects the claim to cost. A closed claim usually has no reserve, so its incurred equals what was paid.
What is ALAE, and is it included in incurred?
ALAE is allocated loss adjustment expense: costs tied to a specific claim, mostly defense counsel and expert fees. Whether incurred includes it depends on the carrier. Some print one incurred figure that includes expense, and some print incurred loss and incurred expense separately. If the heading does not say, test one row: add paid loss and reserve, then add expense, and see which sum equals the printed incurred. LossRun Pro makes that test across the whole report and notes when the printed incurred appears to leave expense out.
What does the valuation date on a loss run mean?
It is the date as of which the report measures every payment and reserve. A claim that is open at one valuation date may be closed at the next, and a reserve can move in either direction. When two loss runs for the same period show different figures, check their valuation dates before looking for an error.
How recent should a loss run be?
That is set by the market you are approaching, not by a rule. Many markets ask for loss runs valued within 60 to 90 days of the proposed effective date. If a loss run is older than the market allows, ask the carrier for a new valuation instead of using the old one.
Why would a closed claim still have a reserve?
Usually because the reserve was not released when the claim closed, or because the status is out of date. Either way the figure is suspect: it adds to incurred for a claim the carrier says is finished. LossRun Pro marks a closed claim with a reserve so you can ask the carrier which field is right.
What is the difference between occurrence and claims-made on a loss run?
On an occurrence policy, a claim is assigned to the policy period in which the loss took place, even if it is reported years later. On a claims-made policy, it is assigned to the period in which the claim was first made against the insured. The policy period shown beside a claim is therefore the right period for that policy form, and a loss date outside the period is worth a question on an occurrence policy.
Why do the claim rows sometimes not add up to the printed total?
Common reasons are a page that was not included, a claim listed twice across a page break, a total struck at a different valuation date than the claim rows, and, on a scan, a misread digit. The cure is to compare the sum of the claim rows with the printed total for each period, which is the check LossRun Pro runs. If the PDF itself is internally inconsistent, ask the carrier for a corrected run.
What is a reopened claim?
A claim that had been closed and was opened again, for example because of new medical treatment or a late demand. It is carried as open until it closes again, and the reserve on it matters to an underwriter. LossRun Pro counts a reopened claim as open.
Does a loss run include incurred but not reported (IBNR)?
No. A loss run lists claims that have been reported. IBNR is an actuarial estimate for claims that have not been reported yet or that will develop further, and it lives in the carrier's and the underwriter's own analysis, not on the claim list.
How many years of loss runs should I get?
Five years plus the current term is the usual request, but follow the market. The request letter page sets out what to ask each carrier for.