Product Update

Loss Development Factors and Payout Profiles Updated in Risk Financing

This release of Risk Financing includes updates to the loss development factors (LDFs) for general liability and automobile liability and payout profiles for these lines. LDFs provide a means for recognizing the growth in losses over time for "long tail risks," such as workers compensation and liability insurance. LDFs provide a measure of the adjustments required to recognize the maturing process of "green" loss data.

Payout profiles reflect the expected timing of payments on average for long tail lines of coverage. They indicate the percentage of loss totals that are expected to be paid in the years following the date of an accident or occurrence. For example, the payout profile for general liability insurance shows that only 9 percent of the incurred losses for a given period are paid by the end of the first year, 22 percent by the end of the second year, and so on until all losses are completely paid.

The LDFs for general liability and automobile liability risks published in Risk Financing are updated annually by SIGMA Actuarial Group. SIGMA Actuarial also provides updates to the payout profiles for workers compensation, general liability, and automobile liability.

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