Which term is a prediction of the frequency and severity of losses based on loss history distributions and statistics?

Which term is a prediction of the frequency and severity of losses based on loss history distributions and statistics?

• A. Expected Losses
• B. Frequency
• C. Hazard
• D. Exposure

Answer: (A)

The idea being tested is predicting a financial impact by combining how often losses happen with how large they tend to be, using historical loss data. This combined forecast is the expected losses—the average loss you would anticipate per period once you account for both the frequency and the severity of losses, derived from the loss history distributions and statistical modeling. In other words, you’re taking the distribution of past losses, calculating its mean, and interpreting that as the predicted loss amount going forward. Why this fits: expected losses reflect the mean outcome from the loss distribution, effectively blending frequency and severity into a single measure. Hazard refers to the underlying risk factors that make losses more likely, exposure is the amount at risk or the size of the portfolio, and frequency alone measures how often losses occur without accounting for their size. So expected losses is the term that captures the predicted average loss based on historical distributions and statistics.

The idea being tested is predicting a financial impact by combining how often losses happen with how large they tend to be, using historical loss data. This combined forecast is the expected losses—the average loss you would anticipate per period once you account for both the frequency and the severity of losses, derived from the loss history distributions and statistical modeling. In other words, you’re taking the distribution of past losses, calculating its mean, and interpreting that as the predicted loss amount going forward.

Why this fits: expected losses reflect the mean outcome from the loss distribution, effectively blending frequency and severity into a single measure. Hazard refers to the underlying risk factors that make losses more likely, exposure is the amount at risk or the size of the portfolio, and frequency alone measures how often losses occur without accounting for their size. So expected losses is the term that captures the predicted average loss based on historical distributions and statistics.