Final answer:
The statement is true. Incurred losses include both paid losses and known but not yet paid losses.
Step-by-step explanation:
The statement is true.
Incurred losses are not the sum of paid losses and known but not yet paid losses. Instead, incurred losses represent the total losses that have occurred during a specific period, whether they have been paid or are still outstanding. It encompasses both paid losses and the change in the reserves for losses, which include the known but not yet paid losses. Therefore, the formula for incurred losses is:
Incurred Losses = Paid Losses + Change in Loss Reserves
This change in loss reserves accounts for the estimated liability for losses that have been incurred but not yet settled. In summary, incurred losses are a broader measure that considers both paid losses and the adjustments to reserves for future expected payments.
Incurred losses are losses that have already happened, whether they have been paid or not. Paid losses are the losses that have been compensated or settled, while known but not yet paid losses are the losses that have been recognized but not yet paid. So, incurred losses include both paid losses and known but not yet paid losses.