What is Ultimate Net Loss
For Insurer, the loss is when a claim is received. However, that is not the only aspect to consider while calculation of loss reserves or generally analyzing the data. The Ultimate Net loss is the loss retained with the company after reinsurance recovery, salvage or any third party recovery.
Breaking Down Ultimate Net Loss
There are three types of main recovery and those are from outwards insurance protection, salvage, or a third party involved in claim incident from subrogation rights.
Reinsurance recovery includes the amount owed to the insurer by the reinsurer for claims and claims-related expenses, the amount owed for paid losses and excludes Incurred But Not Reported or IBNR reserves are a part of claims reserves estimated by insurers for reporting on their financial statements. Claims reserves are estimates of claims that have occurred on or before the financial statement report date but which have yet to be paid. This a current lia... (IBNR) losses and any or any other type of amount like outstanding claims.
Salvage reffers to the amount received for the damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars or mobile.
Third Party Recovery using Subrogation Rights
Third party recovery refers to claims that are the responsibility of someone other than insured. The responsible party may be a person, firm, corporation, or insurance company. Auto-related injuries and “slip-and-fall” injuries are examples of common third party cases. The third party provisions of your insurer insurance plan apply even if the third party is not at fault and has medical payment insurance. Examples of that include homeowners insurance and auto personal injury protection insurance.
Please make note that the term Ultimate Net Loss may confuse you with Ultimate Claims or Ultimate Loss used in loss reserving or in IBNR valuation, this is not what it looks like!