The timing of loss events significantly impacts financial reporting and analysis within the insurance industry. One method groups claims based on when they occurred, regardless of when they are reported or paid. Another groups claims based on when they are reported, irrespective of when the actual incident took place. For example, a claim arising from a car accident in December 2023 but reported in February 2024 would be assigned to 2023 under the first method and 2024 under the second. Understanding this distinction is crucial for accurate reserve setting, profitability analysis, and trend identification.
This differentiation provides a more nuanced understanding of loss development patterns and underlying trends. Analyzing data through both lenses offers a clearer picture of an insurer’s financial health and helps in predicting future liabilities more accurately. Historically, this dual approach has evolved to address the inherent lag between incident occurrence and claim settlement, providing a more complete view of an insurer’s financial position over time.
