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Loss Development Factor

Loss Development Factor (LDF)

Definition

There is a general upward trend in liability and workers compensation claim totals after the initial reporting period called "loss development." A common method of adjusting losses for the growth in claims and incurred but not reported (IBNR) losses is to apply loss development factors (LDFs). LDFs are used to arrive at the ultimate value that can be expected for a claim. For example, an LDF of 1.50 means that for every $1 of current claims, the ultimate payout will be $1.50. A total of $50,000 in current claims would result in an ultimate payout of $75,000.

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