The annualized loss expectancy (ALE) is the product of the annual rate of occurrence (ARO) and the single loss expectancy (SLE). It is mathematically expressed as:
ALE = ARO x SLE
Suppose that an asset is valued at $100,000, and the Exposure Factor (EF) for this asset is 25%. The single loss expectancy (SLE) then, is 25% * $100,000, or $25,000.
The annualized loss expectancy is the product of the annual rate of occurrence (ARO) and the single loss expectancy. ALE = ARO * SLE
For an annual rate of occurrence of one, the annualized loss expectancy is 1 * $25,000, or $25,000.
For an ARO of three, the equation is: ALE = 3 * $25,000. Therefore: ALE = $75,000
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.