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RETROSPECTIVE RATING PLANS Retrospective rating focuses on the application of a basic concept. The insured provides the funds, which the insurer uses to pay claims and expenses. If the funds do not cover the costs, the insured has to pay an additional premium subject to the maximum premium. If there are excess funds, the insured is given a refund subject to a minimum premium. By example:
	Basic Premium Minimum Premium Maximum Premium	100%	$190,000 95,000 285,000
In other words; if, losses and expenses are equal to $199,253 or more, the maximum premium charge of $295,000 would be fully earned; if losses and expenses are $34,751 or less, the minimum premium of $95,000 would be fully earned. Based on a Basic Premium charge of $190,000, the insured would be billed a maximum of $95,000 additional premium if losses exceeded $199,253, based on the loss and expense conversion factor of a standard policy Retro Program, and a return of premium of $95,000 if losses were $34,751 or less. For an insured that believes his business is far better than the “Average” Industry Risk Class experience, and that his business is charged rates far too high, that business owner could assume the risk associated with losses greater than the average, and end up paying more than the standard rate, OR assume more risk and benefit with a refund of almost fifty percent of the standard rate. There are many variations to the above Retrospective Rating Plans. The above is the simplest example of how it works. The formula and factors refund and charge, up to the maximum and as low as the minimum based on actual losses.
			F. Darrell Lindsey State Approved Captive/RRG Manager U.S. State Licensed Agent/Broker
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