loss development factor LDF

A loss development factor (LDF) is used to adjust losses to account for the general upward trend in liability and workers compensation claim totals after the initial reporting period through the closing of the claim. LDFs are used to arrive at the ultimate value that can be expected for a claim.

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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. LDFs can also be used to estimate incurred but not reported (IBNR) losses.