SSAP 66: Retrospectively Rated Contracts

Question 1

Define Retrospective Rating

Answer 1

final premium is based on the insured’s loss experience during the policy term.

Question 2

Two ways to estimate future premium adjustments

Answer 2

• actuarially accepted methods: e.g. calculate the historical ratios of retrospective developments to earned standard premium. Apply to standard premium of current policies to estimate the retrospective development.
• review each retrospectively rated contract individually

Question 3

When are premium adjustments recognized?

How is it recorded?

Answer 3

• prem adjustments are recognized immediately
• Accrued additional premium: recorded as a
  receivable.
• Accrued return premium: recorded as part of the
  change in UEPR

Question 4

Formula for non-admitted balances

Answer 4

Non admitted balance = a + b + insurer’s
selected item from c or d

a: 100% of recoverables from any person for whom any agents’ balances have been classified as nonadmitted.
b: Retrospective premium adjustments that are not determined & billed/ refunded in accordance with the policy provisions.
c: 10% of accrued retrospective premium that is not offset by the following: Retrospective return premium/ Other liabilities to the same party/ Unused collateral
d: An amount which is based on certain factors applied to the accrued retrospective premium that is not offset by the collateral items listed in c

Question 5

Factors for part D of the non-admitted balances formula

Answer 5

Insured's Current Quality Rating ---> Percentage of Retro Premium to be Non-admitted
1 ---> 1%
2 ---> 2%
3 ---> 5%
4 ---> 10%
5 ---> 20%
6 ---> 100%

• If not rated by public rating agency or SUO, then assume a rating of 5