[[Actuarial Notes Wiki|Wiki]] / [[Exam 5 (CAS)]] / **Loss Trend** ## Definition ==Loss Trend== is the systematic change in average claim costs over time, driven by inflation, social inflation, severity changes, and other economic factors. ## Components ### Economic Inflation - General price level increases (CPI) - Medical cost inflation - Wage inflation - Repair cost inflation - Attorney fee increases ### Social Inflation - Larger jury awards - Broader liability interpretations - Legislative changes - Plaintiff attorney tactics - Increased litigation ### Severity Changes - Higher limits purchased - Coverage expansions - Mix of business shifts ## Estimation Methods ### Historical Regression ``` Fit trend line to historical loss costs: - Annual loss cost by year - Regression analysis - Calculate implied trend rate ``` ### External Indices - CPI (Consumer Price Index) - Medical CPI - Wage indices - Industry benchmarks ### Judgmental Selection - Consider expected future - Recent trend changes - Known factors - Economic forecasts ## Application ``` Trended Losses = Historical Losses × (1 + trend)^years Example: Historical ultimate: $1,000,000 Loss trend: 4% annually Years to rating period: 2.5 Trended: $1,000,000 × 1.04^2.5 = $1,104,081 ``` ## Typical Ranges by Line ``` Auto Liability: 3-6% annually Workers Comp: 2-5% annually General Liability: 4-8% annually Medical Malpractice: 3-7% annually Property: 2-4% annually ``` ## Related Concepts - [[Trend#Definition]] - [[Exposure Trend#Definition]] - [[Exponential Trend#Definition]] ## References - Werner & Modlin, Chapter 8 - ASOP 13