What is Loss Severity ?
Loss severity refers to the extent of financial loss that occurs when an adverse event or incident, such as a default, occurs. It is a measure of how much of the total exposure or value at risk is lost when a particular risk materializes. For example, in the context of lending, loss severity would indicate the percentage of the outstanding loan amount that a lender might lose if the borrower defaults and the collateral is not sufficient to cover the entire loan. Loss severity is a critical factor in risk assessment and risk management, helping businesses and financial institutions quantify potential losses and make informed decisions about risk exposure and mitigation strategies.
How to Calculate Loss Severity?
Loss Severity calculator uses Loss severity = 1-Recovery Rate to calculate the Loss severity, The Loss Severity refers to the extent of financial loss incurred from an event or incident. Loss severity is denoted by LS symbol.
How to calculate Loss Severity using this online calculator? To use this online calculator for Loss Severity, enter Recovery Rate (RR) and hit the calculate button. Here is how the Loss Severity calculation can be explained with given input values -> 0.12 = 1-0.88.