Ultimate loss
The estimated total cost of claims for an accident year once all development is complete, including IBNR and residual reserves.
At Lloyd's, a year of account normally closes after three years through a reinsurance to close (RITC): the syndicate pays the next year of account a premium equal to what it estimates remains to be paid, and the year is closed. Everything rests on the ultimate loss, the final cost of all claims of an accident or underwriting year once the last one is paid. It is the sum of payments already made, case reserves on open claims (RBNS) and IBNR, claims incurred but not yet reported or not yet fully valued, and the actuary projects it from a development triangle, by chain ladder or Bornhuetter-Ferguson. It is only known for certain at full run-off, which takes two years in motor own damage and several decades in casualty. Meanwhile every revision shows in the accounts: a falling ultimate means favorable development, a rising one adverse development, and a string of adverse years says the original reserves were short.
Liability accident year 2020: at year-end 2023, 8.5 M EUR of cumulative paid losses and case reserves (RBNS), plus 2.1 M EUR of estimated IBNR. The ultimate loss comes to 10.6 M EUR, with an actuarial uncertainty of ± 1.2 M EUR.
ultimate loss, ultimate claim cost, ultimates, losses at ultimate
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