What does loss distribution refer to in insurance terms?

Loss distribution in insurance refers specifically to the various amounts that may be paid out as a result of losses incurred by policyholders. This concept involves analyzing how losses are spread across different claims, allowing insurers to understand not just the average loss amount but also the variability and potential extreme losses that could occur.

Policyholders experience losses that can vary significantly in magnitude; hence, understanding this distribution helps insurance companies manage risk more effectively. By analyzing loss distribution, insurers can set appropriate premium levels and ensure they have enough reserves to cover potential claims. It is an essential concept in risk management and actuarial science, aiding insurers in predicting future losses based on past data and trends.

The other options, while relevant to insurance operations, do not encapsulate the definition of loss distribution. The frequency of claims, total premiums collected, and the number of claims filed over a period are important metrics in assessing an insurance company's performance, but they do not specifically address the variance and amounts related to losses, which is the essence of loss distribution.