Ultimate Net Loss

What Is Ultimate Net Loss?

Ultimate net loss is a party's total financial obligation when an insured event happens. The insured's ultimate net loss from costs, for example, property damage, medical expenses and legal fees will be offset by the portion of the loss that is paid by the insurance company (normally the amount of the claim that surpasses the insured's deductible, up to the policy maximum). In this way, the insured's loss will frequently be limited to the policy deductible except if the total loss surpasses the policy maximum.

Grasping Ultimate Net Loss

An insurance company's ultimate net loss from a claim might be offset by the salvage value of any recoverable things, awards from fruitful claims against outsiders, money from reinsurance and the policyholder's deductible and policy maximum. Ultimate net loss can be a generic term that alludes to the total amount of any loss, however in finance, it is most ordinarily used to allude to an insurance company's total loss from a policyholder's claim.

Insurance companies can safeguard themselves against large ultimate net losses by sharing policy risk with reinsurers. At the point when an insurer shares a portion of the premiums it gathers with a reinsurance company, it gains protection against a portion of its claims losses. For instance, an insurance company could receive $30,000 in annual premiums for a $10 million policy. To safeguard itself against the threat of a $10 million loss, the insurance company could surrender $15,000 of the annual premium to a reinsurer, who might consent to cover $5 million of the possible loss.

Ultimate Net Loss and Liability Insurance

In liability insurance, ultimate net loss is the amount really paid or payable for the settlement of a claim for which the reinsured is obligated (counting or excluding defense costs), after deductions are made for recoveries and certain predefined reinsurance.

In liability insurance contract language, ultimate net loss is frequently depicted as "the total sum which the insured, or his underlying insurers as scheduled, or both, become committed to pay by reason of personal wounds … and will likewise incorporate … expenses for specialists, legal counselors, attendants and agents and different people, and for litigation, settlement, adjustment and investigation of claims and suits which are paid as outcome of any occurrence cover hereunder."

Ultimate Net Loss and Reinsurance

In reinsurance, ultimate net loss alludes to the unit of loss to which the reinsurance applies, as determined by the reinsurance agreement. All in all, the gross loss less any recoveries from other reinsurance which reduce the loss to the treaty being referred to.