RISK66's Loss Forecaster is an easy-to-use, web-based tool for forecasting property and casualty losses and estimating required reserves. It features a comprehensive database of loss development and trend data, supports both incurred and paid methodologies, and can be customized to your needs. If you're unfamiliar with the software, you may need help interpreting its reports to apply the insights effectively.
The Loss Projection Reports have two options in terms of format. The first is the Summary Report, which is a quick snapshot of all the key findings gained from completing the analysis. It also includes a sensitivity grid to see how movement in the Pure Loss Rate and projected exposure can affect the loss projection for the upcoming year. As a one-page report, the Summary Report is self-explanatory once the detailed Loss Projection Report is understood.
The second is the Loss Projection Report, which is intended to use unique loss trends established by a company’s history (typically a period of at least 4-5 years) and utilize the insights gained to project future expected losses in the property and casualty field.
The Analysis Setup Data and Loss Data Input pages of a Loss Forecaster Report give a quick look into the data and assumptions made in calculating the loss pick shown later in the report.
The Excess of Limit Data Input page is utilized for loss-sensitive programs. This page will showcase loss amounts over the per occurrence loss limit that was selected in the setup of the report but is also shown here for convenience. This page helps showcase the information that went into the calculation of the limited Incurred and Paid losses that are used throughout the rest of this report.
The limited losses are then developed to their “ultimate values” using the selected Loss Development Factor (LDF) method. The selected method and corresponding calculations are captured on the Loss Development Factors page. The resulting developed values are then filtered over to the Selected Estimated Ultimate Losses page. Here, a weighted selection is applied between the Incurred and Paid development methods to determine the selected ultimate loss for each period.
Because the value of money changes over time, losses must be adjusted to reflect today’s economic environment. This is accomplished by applying Adjustment Factors, which are shown on The Inflation Trend Factor page.
When applying inflation, the historical dollar values are increased to reflect present values; however, doing so may cause some losses that were originally below the selected limit to inflate above the limit, thus skewing the data. To negate this issue, Loss Forecaster has a tab titled Excess of Threshold Data Input. This page calculates the range of inflation values that would cause losses to exceed the selected limit. It also gives the user the option to “cap” inflation at a specified threshold. All this information is displayed on that page of the report.
Losses are adjusted to today’s current legal environment by applying Benefit Level Change Factors (BLCFs) for Workers Compensation losses in conjunction with the previously calculated “Inflation Trend Factor” to get “Adjusted Losses.” This calculation is shown on the Loss Trend Adjustments tab. If the exposure is measured in monetary units of risk (such as payroll or revenue), a “Payment Adjustment Factor” is applied to trend the exposure. This adjustment is displayed on the Exposure Trend Adjustments page.
Once losses are limited and in terms of today’s dollars (and exposure if applicable), historical Pure Loss Rates (PLRs) are computed and selected for the projected period. The calculation and selection of PLRs are shown on the Pure Loss Rate page of the report. This information is used to calculate a Confidence Interval, which is displayed on the Payout Schedule and Discount Rates page, along with a sample 10-year payout schedule of losses for the projected year.
The Reserve Analysis is a different type of report that Loss Forecaster can produce but contains much of the same information and pages. The main difference is the Estimated Required Reserves page of the report, which calculates the estimated required reserves by subtracting paid to date losses from the selected ultimate losses.
If any of these terms are unfamiliar or you would like a refresher, RISK66 contains many videos and documents in our complimentary Educational Library that may be able to assist.
Moving Away from a Guaranteed Cost Program: This presentation walks through the three main ways that Loss Forecaster can assist in providing clients with an informed decision, as well as analyzing the potential savings.
Large Deductible Comparison Tool: This 30-minute webinar covers one of RISK66's most popular resources, the Large Deductible Graphic, which graphically explains some of the components to consider when selecting the appropriate loss retention for a deductible program. This webinar also covers our new tool which allows you to visually compare various retentions as well as a guaranteed cost plan.
How to Negotiate Collateral Requirements using Analytics: This video explains the steps you should take to be prepared for and to negotiate collateral requirements with an insured.
Cash Flow and Present Value Analysis: This video explains how payout percentages and payout schedules are used to plan for future losses. Discounting and the Discount Rate are also discussed.
Workers Compensation Benchmark Loss Projections: This webinar provides a high-level summary of how a benchmark loss projection is calculated. It also answers questions such as "What is a class code?" and "How do I handle company payroll that falls in multiple class codes and spans multiple states?".
As always, SIGMA is available to discuss solutions to challenges unique to a particular company or industry. Schedule a call today with one of our consulting actuaries.
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