# B.09.Gillam & Snader 2 / NCCI

 WC expense program in experience rating, SP = MP * modexpenses assumed to be a flat % of Pappropriate for small risks, but as P incr, expenses should make up a smaller portion of the higher layerscan reflect this via discount factorsGuaranteed Cost Premium = SP - Discount Formula for retro premium H ≤ R = (b + cL)T ≤ GR/T = b + cL = b + crE Retro - Basic premium insurance carrier servicesloss control servicesadjustment for limiting premiumprofit / contingenciesb = e - (c - 1)E + cI = expense component + cIe: provision for expense & profit as ratio of SPcI: converted insurance charge Retro - Expense e = (1 - D)/T - ET(e + E) = 1 - D = Guaranteed Cost Premium Retro - Tax multiplier tax: proportional to net premium (τ)assessment: proportional to losses (μ)0.2 = expense piece of retro P Retro - Insurance charge quantifies the net impact to insr for application of min & max PcI = c(XG - SH)EXG = table M charge at entry ratio rGSH = table M savings at entry ratio rH  Retro - Balance equations Value difference Entry difference circular ref of insurance chargeif satisfy both, expected retro P = GCPif no min, SG = [G/T - (e + E)] / cE Constructing a Table M Calculate entry ratio. If no E given, use E(hat)# risks at LR# risks over LRlosses over LR: start bottom, cumulative sum of previouslosses over / max losses over = φ(r)Ψ(r) = φ(r) + r - 1 Retro - Aggregate balance retro = (b + cL)Tapply H and Gcheck if sum = # risks * risk amt * GCPif yes - actuarial balance btwn retro & prospective rating Insurance charge reflecting loss limitations       instead of using limited table M, loss grp adj factor = [1+.8(F/E)] / [1-(F/E)], F/E = LERmult by state & hazard grp differentialuser regular table M → risk is assigned to higher size grp (less skewed) Continuous case for φ(r) and Ψ(r)  AuthorExam8 ID166026 Card SetB.09.Gillam & Snader 2 / NCCI DescriptionFundamentals of Individual Risk Raring, Part II / Retrospective Rating Plan Manual Updated2012-08-14T20:36:33Z Show Answers