Product Update

Risk Quantification Discussions and Factors Updated in Risk Financing

This release of Risk Financing revises the risk quantification factors in Appendix F including updates to the workers compensation loss development factors (LDFs) and benefit level adjustments, updates to the LDFs for general liability and automobile liability, as well as updates to claims payout profiles and the consumer price index. Note that updates to the US claims cost indexes were not available at the time of this publication. We will provide updates as soon as they are completed. In the meantime, subscribers should feel comfortable utilizing the factors currently listed. The annual changes are typically not significant.

Several applications of the trend factors and payout profiles are described in the discussions in section II, "Risk Quantification." "Data Requirements" discusses the type of information required for different types of analyses and where insureds typically can find it. This section also provides examples of how trend factors are utilized, such as those for loss development, benefit level adjustments, and inflation indexes. It explains the use of payout profiles and present value analysis for different risks. "Basic Loss Forecasting Methods" offers additional examples for forecasting losses.

"The Cost of Capital and the Time Value of Money" explains how to incorporate the "time value of money" principals into different risk financing arrangements. This section provides examples using discount factors and loss payout profiles as well.

Additional information is available in the October 2017 Release Notes.

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