Gillam & Snader - Fund. of Ind. Risk Rating: Retro Rating

Question 1

This paper describes an adjustment which is made in the process of calculating an insurance charge in order to reflect a loss limitation.
Explain the reason for the adjustment and the effect of using this adjustment on the process of calculating insurance charge.

Answer 1

Reason: actual loss subject to a plan which limits ratable losses to a fixed $ amount have a different aggregate distribution than a plan without limitation.

Effect: This adjustment, along with using multiplier for state and HG, approximates a limited loss table M by shifting columns to one with lower charges.