01.Core Concepts

The second step is to measure and analyze loss exposures Estimate for each type of loss exposure: Loss frequency refers to the probable number of losses that may occur during some time period Loss severity refers to the probable size of the losses that may occur Rank exposures by importance Loss severity is more important than loss frequency: The maximum possible loss is the worst loss that could happen to the firm during its lifetime The probable maximum loss is the worst loss that is likely to happen