B.09.Gillam & Snader 2 / NCCI

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Author:
Exam8
ID:
166026
Filename:
B.09.Gillam & Snader 2 / NCCI
Updated:
2012-08-14 16:36:33
Tags:
wc expense retro rating
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Description:
Fundamentals of Individual Risk Raring, Part II / Retrospective Rating Plan Manual
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  1. WC expense program
    • in experience rating, SP = MP * mod
    • expenses assumed to be a flat % of P
    • appropriate for small risks, but as P incr, expenses should make up a smaller portion of the higher layers
    • can reflect this via discount factors
    • Guaranteed Cost Premium = SP - Discount
  2. Formula for retro premium
    • H ≤ R = (b + cL)T ≤ G
    • R/T = b + cL = b + crE
  3. Retro - Basic premium
    • insurance carrier services
    • loss control services
    • adjustment for limiting premium
    • profit / contingencies
    • b = e - (c - 1)E + cI = expense component + cI
    • e: provision for expense & profit as ratio of SP
    • cI: converted insurance charge
  4. Retro - Expense
    • e = (1 - D)/T - E
    • T(e + E) = 1 - D = Guaranteed Cost Premium
  5. Retro - Tax multiplier
    • tax: proportional to net premium (τ)
    • assessment: proportional to losses (μ)
    • 0.2 = expense piece of retro P
  6. Retro - Insurance charge
    • quantifies the net impact to insr for application of min & max P
    • cI = c(XG - SH)E
    • XG = table M charge at entry ratio rG
    • SH = table M savings at entry ratio rH 
  7. Retro - Balance equations
    • Value difference
    • Entry difference
    • circular ref of insurance charge
    • if satisfy both, expected retro P = GCP
    • if no min, SG = [G/T - (e + E)] / cE
  8. Constructing a Table M
    • Calculate entry ratio. If no E given, use E(hat)
    • # risks at LR
    • # risks over LR
    • losses over LR: start bottom, cumulative sum of previous
    • losses over / max losses over = φ(r)
    • Ψ(r) = φ(r) + r - 1
  9. Retro - Aggregate balance
    • retro = (b + cL)T
    • apply H and G
    • check if sum = # risks * risk amt * GCP
    • if yes - actuarial balance btwn retro & prospective rating
  10. Insurance charge reflecting loss limitations
    • instead of using limited table M, loss grp adj factor = [1+.8(F/E)] / [1-(F/E)], F/E = LER
    • mult by state & hazard grp differential
    • user regular table M → risk is assigned to higher size grp (less skewed)
  11. Continuous case for φ(r) and Ψ(r)


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