Which of the following statements about the loss severity distribution is correct?
A) The loss severity distribution estimates the average size of an expected loss.
B) The loss severity distribution can be used to estimate the average severity of loss if a loss occurs.
C) The loss severity distribution represents the number of losses likely to happen.
D) The loss severity distribution is measured as a percentage of loss.

Question

Quizplus · Accepted Answer

The loss severity distribution estimates the probability distribution of potential loss sizes, allowing for estimation of the average severity of loss if a loss occurs. It does not represent the number of losses likely to happen or the percentage of loss. Option A is incorrect because the average size of an expected loss is estimated using the expected loss distribution.

Which of the Following Statements About the Loss Severity Distribution