An actuarial method to detect and correct for consistent errors in estimating the amount of future loss payments or the procedure for adjusting incurred losses to reflect their future development and ultimate value. Loss development factors are developed actuarially and applied to current losses in order to predict what the ultimate cost of losses will be when the claims are closed.
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The difference between the amount of losses initially estimated by the insurer and the amount reported in an evaluation on a later date.
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UK: The difference between the initial estimate of a loss and the amount estimated at a later date or the amount paid on settlement at which point it is the difference between the amount reserved and the amount paid.
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US: The difference between the original loss as initially reserved by an insurer and its subsequent evaluation later or at the time of its final disposal. Loss development occurs because of (1) inflation—both “social inflation” and inflation in the consumer price index—during the period in which losses are reported and ultimately settled and (2) time lags between the occurrence of claims and the time they are actually reported to an insurer. To account for these increases, a “loss development factor” (LDF) or multiplier is usually applied to a claim or group of claims in an effort to more accurately project the ultimate amount for which they will be closed.
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REINSURANCE: The difference between the original loss as originally reported to the reinsurer and its subsequent evaluation at a later date or at the time of its final disposal. A serious problem to reinsurers who, being involved in the more serious cases, must frequently wait many years for the final disposition of a loss.
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The difference between the value of the losses estimated by the insurer and the amount reported on a later date.
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REINSURANCE: The process of change in the value of claims over time until the claims are fully settled and paid. It is measured by the difference between paid losses and estimated outstanding losses at some subsequent point in time (usually 12 month periods), and paid losses and estimated outstanding losses at some previous point in time. In common usage it might refer to development on reported cases only, whereas a broader definition also would take into account the IBNR claims.