The game tracks individual soldiers ability. When your better soldiers die, the valour (chevrons) of the unit decreases.
The amount of chevrons a unit has is an average of all soldiers ability. It increases when your worse soldiers die off because the unit is made up of some very experienced soldiers.
You will notice a decrease in chevrons when you retrain a unit as well, because fresh, unexperienced soldiers are brought in, lowering the average valour of the unit.
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