Definition:Liability for incurred claims (LIC)
📋 Liability for incurred claims (LIC) is the second of the two balance-sheet components that IFRS 17 uses to present an insurer's insurance contract obligations, complementing the liability for remaining coverage. The LIC captures the insurer's obligation to pay claims for insured events that have already occurred, including events that have been reported but not yet settled and those that have been incurred but not yet reported. It is the IFRS 17 analogue of the traditional outstanding claims reserve, though measured on a fulfilment-value basis.
🔍 Measurement of the LIC follows the general fulfilment cash flow framework: the insurer estimates the present value of future cash outflows needed to settle incurred claims, adds a risk adjustment for non-financial risk, and applies an appropriate discount rate. Unlike the LRC, the LIC contains no contractual service margin because the related coverage has already been provided. Changes in the LIC from period to period — whether from new incurrals, revised estimates, or actual settlements — flow through the insurance service expense line, directly affecting the insurance service result.
⚖️ Accurate estimation of the LIC is especially consequential for carriers writing long-tail lines such as casualty, professional liability, and workers' compensation, where claims can take years or even decades to resolve. Because IFRS 17 mandates explicit discounting and a transparent risk adjustment, the LIC gives investors and regulators a more economically faithful picture of an insurer's outstanding obligations than the undiscounted reserves that many jurisdictions previously permitted. It also makes reserve adequacy — and any reserve development — considerably more visible in the financial statements.
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