Estimating the Premium on Retrospectively Rated Policies

This paper presents a method for estimating the premium asset on retrospectively rated policies, using the functional relationship between the losses and the retrospective premium. This relationship is examined using the historical premium and loss development data and the retro rating parameters sold in the underlying policy. The cumulative ratio of premium development to loss development, when applied to the expected future loss emergence, gives the expected future premium development on the retro rated policies. The sum of all future premium development is the premium asset.