Predicting future losses through an analysis of past losses. Past loss data
must usually span a sufficient number of years (5 or more) to achieve some
degree of credibility. The time span is important because the most recent
years' experience most closely approximates current exposure, yet the
earlier years' losses have had more time to develop. The law of large
numbers, exposure data, any anticipated changes in company operations or
structure, inflation, workers compensation benefit changes, and any other
relevant factors must be considered when forecasting losses.