Retrospective Rating / RULE 1

The application of this Plan is optional and may be used only upon election by the employer and acceptance by the insurance carrier.

A retrospective rating plan adjusts the premium for the employer’s policy on the basis of losses incurred during the term of that policy.  The intent is to charge premium that reflects the actual experience of the employer based on the employer’s individual loss history during the policy term.  A retrospective rating plan uses the losses incurred during the term of the policy to establish the cost of insurance, and it includes provisions for all expenses and taxes on premium.

1. General Definitions

The following definitions apply to all retrospective rating plan policies, including those written under the Large Risk Rating Option (LRRO):

1. Allocated Loss Adjustment Expense (ALAE)

   Allocated loss adjustment expense for workers’ compensation and employers’ liability insurance, as defined in the New York Workers’ Compensation Statistical Plan, may also be included as part of incurred losses under a retrospective rating plan if agreed upon by the employer and carrier.  This will be called the Allocated Loss Adjustment Expense Option (ALAE Option).

2. Increased Limits for Coverage B

   If the policy provides for increased limits for employers’ liability coverage, the losses may be subject to the retrospective rating loss limitation. The premium for employers’ liability increased limits is based on the percentages provided in Rule VII of the New York Workers’ Compensation and Employers’ Liability Manual.

3. Incurred Losses

   Incurred losses for workers’ compensation and employers’ liability insurance are defined in Part IV of the New York Workers’ Compensation Statistical Plan. Incurred losses include paid and outstanding losses.

   If the ALAE Option is elected, then incurred losses will include ALAE.

   Refer to item (B)(1)(a) of this Rule for the definition of Allocated Loss Adjustment Expense (ALAE) when including ALAE as part of incurred losses.

   Note: The rating formula for incurred losses will not include a loss resulting from:

   1. Non-ratable element codes
   2. Occupational disease for employers subject to the Federal Mine Safety and Health Act
   3. Terrorism, natural disasters and catastrophic industrial accidents including extraordinary loss events which are assigned a specific Catastrophe Number according to the New York Workers’ Compensation Statistical Plan
   4. Reported as fully fraudulent according to the New York Workers’ Compensation Statistical Plan
   5. Reported as non-compensable according to the New York Workers’ Compensation Statistical Plan

4. Large Risk Rating Option (LRRO)

   The New York Large Risk Rating Option is a flexible retrospective rating plan that is mutually agreed to by the employer and carrier. It is an available option for employers with an estimated annual standard premium of at least $500,000 individually or in any combination with any commercial casualty insurance line (general liability, commercial automobile, hospital professional liability, crime, glass) and/or workers’ compensation and employers’ liability insurance.

5. Loss Limitation

   A loss limitation is the limit placed on a claim dollar amount that is to be included in the retrospective rating plan calculation. This is an elective element agreed upon by the employer and the carrier; there is an additional charge associated with a loss limitation.

6. Standard Premium (SP)

   For purposes of the retrospective rating plan, standard premium is determined on the basis of authorized rates, any experience rating modification, and minimum premiums. Determination of standard premium excludes:

   1. Premium discount
   2. Expense constant
   3. Premium resulting from the non-ratable element codes
   4. Premium developed by the occupational disease rates for employers subject to the Federal Mine Safety and Health Act
   5. Premium developed by the provisions for terrorism, natural disasters and catastrophic industrial accidents

7. Unallocated Loss Adjustment Expense (ULAE)

   Unallocated loss adjustment expense for workers’ compensation and employers’ liability insurance is defined in the New York Workers’ Compensation Statistical Plan.

1. Elements of the Retrospective Rating Plan Formula

   The following formula includes all of the elective elements available under a retrospective rating plan. Refer to Rule 3 of this Plan for other variations of the retrospective rating formula.

   Retrospective Rating Premium = (Basic Premium + Excess Loss Premium + Retrospective Rating Development Premium + Converted Losses) x Tax Multiplier.

   1. Retrospective Rating Premium (RRP)

      Retrospective rating premium is the premium based on the application of the retrospective rating plan elements as a result of a mutual agreement between the employer and carrier.

   2. Basic Premium (BP)

      Basic premium is a percentage of standard premium. It is determined by multiplying the standard premium by a basic premium factor. The basic premium factor is developed by the carrier and includes:

      1. General administration costs of the carrier
      2. Related loss control service cost
      3. Insurance charges

      The basic premium factor does not cover premium taxes or claims adjustment expenses. Those elements are usually provided in the tax multiplier and the loss conversion factor.

   3. Converted Losses

      Converted losses are based on the incurred losses of the employer for the policy or policies to which a retrospective rating plan applies. A loss conversion factor is applied to incurred losses to produce the converted incurred losses. (Losses x LCF).

   4. Loss Conversion Factor (LCF)

      The loss conversion factor covers the cost of the carrier’s claim services (e.g., investigation of claims and filing claim reports). The loss conversion factor is established by negotiation between the employer and carrier.

      If the ALAE option is elected as part of incurred losses, the loss conversion factor must be adjusted to exclude ALAE.

   5. Excess Loss Premium (ELP)

      Excess loss premium is a charge for the election of a loss limitation. The excess loss premium factor is applied after the basic premium in the retrospective rating plan formula.

      (Excess Loss Premium = Excess Loss Factor x Standard Premium x Loss Conversion Factor)

      In New York, the New York Compensation Insurance Rating Board (“Rating Board”) files excess loss pure premium factors. The excess loss pure premium factors must be converted to excess loss factors using the carrier’s expense provisions that have been approved for use in New York.

      The conversion formula is:

      Excess Loss Premium Factor = [(Excess Loss Pure Premium Factor x Expected Loss Ratio) x (1 + Loss Adjustment Expense %)].

      The carrier determines the Expected Loss Ratio (ELR). ELR is a ratio of pure losses (no LAE) to premium.

      Refer to the Tables of Retrospective Rating Values of this Plan for the excess loss pure premium factors. Refer to the latest approved New York loss cost filing for the LAE %, which can be found on the Rating Board ‘s website, www.nycirb.org.

      The Table of Classifications by Hazard Group is used to determine the excess loss factor. This factor is determined based on the selected loss limitation and the hazard group assignment shown in the Table for the classification producing the largest amount of estimated workers’ compensation standard premium for each state included in the plan. Refer to the Tables of Retrospective Rating Values of this Plan for the New York Table of Classifications by Hazard Group.

      For employers having USL&HW coverage for non-F classification codes, the applicable hazard group to use for the determination of an excess loss factor (ELF) is the New York classification code hazard group increased two levels. When the classification hazard group is already at the highest-level hazard group use that highest-level hazard group.

      NEW YORK CLASSIFICATION HAZARD GROUP	USL & HW FOR NON-F CLASSIFICATION CODES HAZARD GROUP
      A	C
      B	D
      C	E
      D	F
      E	G
      F	G
      G	G

      For the classification codes that include federal coverages (F-classification codes), use the hazard group assigned to that classification code.

   6. Retrospective Development Premium (RDP)

      Retrospective development premium is an elective element that varies by state. The RDP stabilizes premium adjustments for an employer written under a retrospective rating plan by anticipating future increases in loss costs. The RDP is calculated using the following formula:

      Retrospective Development Premium = Standard Premium x Retrospective Development Premium Factor x Loss Conversion Factor.

      The retrospective development premium factor anticipates a pattern of increasing valuation of losses after the policy is expired. The retrospective development premium factor may be included in the first three calculations of the retrospective premium.

      In New York, the Rating Board files retrospective development pure premium factors. The retrospective development pure premium factors must be converted to retrospective development premium factors using the carrier's approved expense provisions. Refer to the Tables of Retrospective Rating Values of this Plan for retrospective development pure premium factors.

      The conversion formula is:

      Retrospective Development Premium Factor = Retrospective Pure Premium Development Factor x Expected Loss Ratio x (1 + Loss Adjustment Expense %).

      The Retrospective Pure Premium Development Factor and LAE% are Rating Board provided values. Refer to the Tables of Retrospective Rating Values of this Plan for the retrospective pure premium development factors. Refer to the latest approved New York loss cost filing for the LAE %.

      The carrier determines the Expected Loss Ratio (ELR). ELR is a ratio of pure losses (no LAE) to premium.

   7. Tax Multiplier (TM)

      Tax multipliers vary by state and generally cover licenses, fees, assessments, and taxes that the carrier must pay on the premium collected in an individual state.

      Refer to NCCI’s Tax and Assessment Directory for state tax information.

   8. Maximum Retrospective Premium

      Maximum retrospective premium is a percentage of the standard premium determined by the application of a maximum retrospective rating plan premium factor. It is the greatest amount of premium payable by an employer subject to the retrospective rating plan. Maximum retrospective premium places a limit on the impact of incurred losses on a retrospective rating plan premium. It is established by an agreement between the employer and carrier.

   9. Minimum Retrospective Premium

      Minimum retrospective premium is a percentage of the standard premium determined by the application of a minimum retrospective premium factor. It is the least amount of premium payable by an employer subject to the retrospective rating plan. A minimum retrospective premium factor is established by an agreement between the employer and carrier.

Refer to the New York premium algorithm from Rule VI (O) of the Rating Board’s Workers’ Compensation and Employers’ Liability Manual for information on the application of the policy premium elements.

A retrospective rating plan may be applied on an intrastate or interstate basis.

For an interstate employer, an average of the specified state tax multipliers weighted by the state standard premiums is used to calculate the tax multiplier used in the determination of the retrospective rating premium.

If an excluding medical policy is subject to a retrospective rating plan, the Retrospective Rating Plan Endorsement shall indicate the excluding medical status, loss limitations and other factors which have been selected. If the excluding medical policy is subject to per accident limitations, refer to the Table of Loss Limitations for Excluding Medical Policies of this Plan. In other cases, any retrospective rating factors must be adjusted to reflect the excluding medical provision.

The rating values developed to determine premium under a retrospective rating plan do not contemplate deductibles and are designed to be used with losses that are gross of the deductible amount. When a deductible program applies, the use of such program, in conjunction with retrospective rating, requires the agreement of both the employer and the carrier.

The “General Definitions” contained in item (B)(1) of this Rule apply to all retrospective rating plan policies utilizing deductible programs, including those written in conjunction with the Large Risk Rating Option (LRRO).

If the insurance subject to the Plan includes any of the aircraft classifications, the premium and losses for such classifications may be excluded from the Plan by agreement in advance between the employer and the carrier.

The New York Retrospective Rating Plan is applicable on a policy effective date basis for single and multiple risks.

Note: The Plan applies for the period of the policy or policies subject to the Plan.

A long-term construction project is a construction or erection project expected to require more than one-year for completion and let under one contract, or more than one concurrent or consecutive contracts. Such a project may be insured under a one-year policy or policies issued for any period not longer than three years.

A wrap-up construction project is a large construction, erection or demolition project for which policies have been issued by one or more insurance carriers under the same management to insure two or more legal entities (as defined in the New York Workers’ Compensation and Employers’ Liability Manual) engaged in such a project.

The project must be confined to operations at a single location. In connection with the building of roadways, tunnels, waterways, surface or underground conduits, or New York City school construction work specifically authorized by the New York City School Construction Authority Act, the entire job, or sections of the job, shall be considered a single location if the construction is performed by a single general contractor for a single owner or principal. The project must be of definite duration involving work to be performed continuously to completion.

1. Types of Excess Loss Factors

   Excess loss factors are used in retrospective rating when an employer elects to limit the amount of incurred losses to be included in the retrospective rating premium. The charge for this loss limitation is called excess loss premium. The excess loss factors for New York are located in Table E of the Tables of Retrospective Rating Values of this Plan.

   1. Excess Loss Factors (ELF) are provided for states where NCCI files and publishes full rates. ELFs do not take into account the inclusion of Allocated Loss Adjustment Expense (ALAE) as part of incurred losses.

      Excess loss factors represent the expected losses above a given limit (excess losses) relative to full standard premium (including expenses).

      ELF	=	Excess Losses
      		Standard Premium

      Refer to the NCCI Retrospective Rating Plan Manual for the application of these factors.

   2. Excess Loss and Allocated Loss Adjustment Expense Factors (ELAEF) apply when the definition of loss is redefined to include Allocated Loss Adjustment Expense. These factors are provided for states where NCCI files and publishes full rates.

      Excess Loss and Allocated Loss Adjustment Expense Factors represent the expected amount of losses and allocated loss adjustment expenses above a given limit (excess losses including ALAE) relative to full standard premium (including expenses). These optional values are provided for some full rate states, but not all.

      ELAEF	=	Excess Losses and Allocated Loss Adjustment Expenses
      		Standard Premium

      Refer to the NCCI Retrospective Rating Plan Manual for the application of these factors.

   3. Excess Loss Pure Premium Factors (ELPPF) are provided for New York in this Plan. ELPPFs for states where NCCI publishes loss costs rather than full rates are provided in NCCI’s Retrospective Rating Plan Manual. ELPPFs do not take into account the inclusion of ALAE as part of incurred losses. Carriers are required to convert Excess Loss Pure Premium Factors to Excess Loss Factors to Excess Loss Factors. Refer to Rule 1(B)(2)(e) of this Plan for the formula used to convert ELPPFs to ELFs.

      Excess Loss Pure Premium Factors represent the expected amount of losses above a given limit (excess losses) relative to the loss cost portion of the premium.

      ELPPF	=	Excess Losses
      		Lost Cost Premium

   4. Excess Loss and Allocated Loss Adjustment Expense Pure Premium Factors (ELAEPPF) are provided when the definition of loss is redefined to include Allocated Loss Adjustment Expense. These factors are provided for New York in this Plan and in the NCCI Retrospective Rating Plan Manual for those states where NCCI publishes loss costs rather than full rates.

      Excess Loss and Allocated Loss Adjustment Expense Pure Premium Factors represent the expected amount of losses and allocated loss adjustment above a given limit (excess losses including (ALAE) relative to the loss cost of the premium.

      ELAEPPF	=	Excess Losses and Allocated Loss Adjustment Expenses
      		Loss Cost Premium

2. Excess Loss Premium Calculation Example

   In New York, the Rating Board files Excess Loss Pure Premium Factors. The Excess Loss Pure Premium Factors must be converted to Excess Loss Factors using the carrier’s expense provisions, as applicable.

   Term Definition

   Excess Loss Pure Premium Factor	ELPPF	.360
   Expected Loss Ratio	ELR	.648
   Loss Adjustment Expense	LAE	.188
   Excess Loss Factor	ELF	.277

   Conversion of ELPPF to ELF based on the formula below:

   (ELPPF x ELR) x (1 + LAE**)

   (.360 x .648) x (1 + .188)

   (.233) x 1.188)

   ELF = .277

   **The Loss Adjustment Expense % is obtained from the Rating Board’s loss cost filing that is effective one year prior to the effective date of the ELPPFs. For example, you would use the 10/1/10 ELPPFs in conjunction with an LAE% from the 10/1/09 loss cost filing. (This is necessary because it is prior approved LAE% that is used in the calculation of the latest ELPPFs).