The Cash Flow of a Retrospective Rating Plan

With current methodology, the parameters of a retrospective rating plan are calculated to place the plan in balance on an underwriting basis. Thus paper provides a way of calculating the present value of the retrospective premium. Using this methodology, one can compare the expected profitability of various retrospective rating plans on a discounted or operating basis. This includes paid loss retros. It is also possible to determine the parameters of a Plan that will yield a predetermined operating profit,