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1. 2 categories of experience rating
• no split plan: losses are not divided
• split plans: divided into primary & XS. Primary reflects frequency (most weight); XS represents severity
2. 2 categories of split plan
• single split: only one split into primary & excess
• multisplit: div into increments. Decr portion of each incr is  primary
3. Basic formula for no split plan
• M = [ZA + (1-Z)E] / E = 1 + Z [(A - E) / E], Z = E / (E + KE)
• 0 ≤ Z ≤ 1, d/dE(Z) ≥ 0, d/dE(Z/E) < 0
• if KE = k, M = (A + K) / (E + K)
4. Split plans
• (+) better reflect diff types of WC clms (small, med, large w indemn)
• M = (1 / E) [ZpAp + (1-Zp)Ep + ZeAe + (1-Ze)Ee]
• M = 1 + Zp [(Ap - Ep) / E] + Ze [(Ae - Ee) / E]
• Zp = E / (E + KE), Ze = E / (E + JE)
• M = 1 + [(Ap - Ep)/(E + KE)] + [(Ae - Ee)/(E + JE)]
5. Perryman's Formula
• goal: come up w a formula for M which does not include credibility constants
• M = [Ap + WAe + (1-W)Ee + (1-W)K] / [E + (1-W)K]
6. Credibility from revised experience rating plan
• primary cr is greater for smaller risks
• excess cr is slightly greater for smaller risks
• primary cr is smaller for larger risks (capped at 91%) → no more self-rating
• XS cred much smaller for larger risk (cap 57%)
7. Primary value formulae
• I = Increment or interval width
• 1940: Ap = Σ I(1-d)i + (1-d)N(A-NI); max(Ap) = I * (1/d)
• 1961: Ap = [A / (A + C)] (I + C)
• 1991: Ap capped at \$5K
 Author: Exam8 ID: 166025 Card Set: B.08.Gillam & Snader Updated: 2012-08-14 19:44:49 Tags: experience rating split plan perryman Folders: Description: Fundamentals of Individual Risk Rating, Part I Show Answers: