The negotiating process between the employer and carrier is the basis on which a retrospective rating plan provides flexibility in order to meet the needs and characteristics of an employer. As a result of this negotiation, factors for a retrospective rating plan are determined for each employer by agreement between the employer and carrier. Carriers are required to maintain evidence of these agreedupon values in their underwriting files.
When a retrospective rating plan includes workers’ compensation and employers’ liability insurance and other commercial casualty lines of insurance, the total retrospective rating premium, including the minimum and maximum retrospective rating premium, is determined on the basis of all insurance policies in the retrospective rating plan.
The following is an explanation of the tables used in the calculation of retrospective rating premium:
Table  Purpose 
Table A – Table of Expected Loss Ranges  Used to determine the expected loss group in the Table of Insurance Charges. 
Table B – Table of Insurance Charges  Used to determine the insurance charge to be included in the basic premium factor. 
Table C – Tables of Expense Ratios  Used in the calculation of basic premium. These tables are developed by individual carriers in New York. 
Table D – Table of Classifications by Hazard Group  Used in the determination of excess loss factors. 
Table E – Tables of Excess Loss Pure Premium Factors  Used to determine excess loss factors. 
Table F – Tables of Excess Loss Factors for Federal Classifications  Used to determine excess loss premium for federal classes. 
Table G – Table of Loss Limitations for ExMedical Policies  Used to determine accident limitation amount on exmed policies. 
The premium for an employer subject to a retrospective rating plan is determined by the following retrospective rating premium formula:
Retrospective Rating Premium = [Basic Premium + Converted Losses] x Tax Multiplier
The retrospective rating premium will not be less than the minimum retrospective rating premium or more than the maximum retrospective rating premium selected for a retrospective rating plan.
If the employer for which a retrospective rating plan is applied includes more than one legal entity, a single retrospective rating premium is calculated on the basis of the combined entities.
Note: Employers with an estimated annual standard premium of a specified premium eligibility threshold, individually or in any combination with commercial casualty lines of insurance, may be rated under the Large Risk Rating Option. That option provides that such employers may be retrospectively rated as mutually agreed upon by the employer and carrier. Refer to Rule (2)(E) of this Plan.
Retrospective Rating Premium = [Basic Premium + Excess Loss Premium** + Retrospective Rating Development Premium** + Converted Losses*] x Tax Multiplier
These formulas produce a retrospective rating plan premium, which is subject to the Minimum Retrospective Premium and the Maximum Retrospective Premium.
*Losses may include allocated loss adjustment expenses if selected by the employer.
**Elective Premium Element
The premium for a retrospective rating plan with elective premium elements is determined by the following retrospective rating premium formula. The elective elements used in the formula will depend on whether the elective premium elements are included in a retrospective rating plan agreement.
Retrospective Rating Premium = [Basic Premium + Excess Loss Premium + Retrospective Development Premium + Converted Losses] x Tax Multiplier
The result of the above calculation is a retrospective rating premium when the employer has elected one or more of the elective premium elements.
A retrospective rating premium will not be less than the minimum retrospective rating premium or more than the maximum retrospective rating premium selected for a retrospective rating plan.
Under these rules, retrospective rating premiums are always calculated by the carrier, using premium and loss data that has been reported according to the New York Workers’ Compensation Statistical Plan. The number of subsequent calculations is determined as part of the agreement between the employer and the carrier
 First Calculation of Retrospective Rating Premium
Under these rules, retrospective rating premium is calculated by the carrier, as soon as practicable. The calculation will include the premium and loss data valued in the sixth month after the expiration date of the rating plan period and annually thereafter, in accordance with the New York Workers’ Compensation Statistical Plan. The carrier will notify the employer and return premium if the retrospective rating premium is less than the premium previously paid, or the employer will pay any premium greater than premium previously paid, subject to the maximum and minimum retrospective premiums.
Note: In certain situations, the carrier may make an early calculation of retrospective premium. Such situations may include when the employer has filed for, or is in, bankruptcy, liquidation, reorganization, receivership, assignment for benefit or creditors, or other similar situations.
 Subsequent Calculations of Retrospective Rating Premium
If subsequent calculations are to be completed as part of a retrospective rating plan agreement, then the calculations will be made by the carrier twelve months after the initial calculation and then in twelvemonth intervals thereafter. The procedures for the subsequent calculations are the same as described in item (F)(1) of this Rule.
 Final Calculation of Retrospective Rating Premium
Subsequent calculations of retrospective rating premium will be issued by the carrier in accordance with item (F)(2) of this Rule until both the employer and carrier agree that the latest calculation will be the final retrospective rating premium under a Plan. After the final retrospective premium calculation, a revision of that premium adjustment is permitted in accordance with the New York Workers’ Compensation Statistical Plan.
Refer to item (F)(4) of this Rule for examples.
 Retrospective Rating Premium Calculation Examples
For these examples, assume the Retrospective Rating Plan Agreement provides:
Retrospective Rating Factors (a) Estimated Standard Premium $500,000 (b) Maximum Retrospective Premium Factor 1.30 (c) Minimum Retrospective Premium Factor 0.60 (d) Loss Conversion Factor 1.120 (e) Tax Multiplier 1.070 (f) State Hazard Group Relativity 0.750 (g) Excess Loss Factor ($50,000 Loss Limit) 0.36 (h) Expenses from Expense Ratio Table 0.201 Retrospective Premium Development Factors Without Loss Limit With Loss Limit 1^{st} Adjustment 0.21 0.08 2^{nd} Adjustment 0.18 0.06 3^{rd} Adjustment 0.13 0.02
Example 1:
Calculation of Retrospective Premium: First, Second and Third Adjustments
This example contains:
 No loss limits
 Retrospective Development Factors
Factors  First Adjustment 
Second Adjustment 
Third Adjustment 

1.  Standard Premium  500,000  500,000  500,000  
2.  Basic Premium Factor (See Example 4)  0.145  
3.  Basic Premium (2 x 1)  72,500  72,500  72,500  
4.  Excess Loss Premium Factor  
5.  Excess Loss Premium (4 x 1 x 7)  0  0  0  
6.  Ratable Losses  150,000  200,000  275,000  
7.  Loss Conversion Factor  1.120  
8.  Converted Losses (6 x 7)  168,000  224,000  308,000  
9.  Retrospective Development Factor  0.210  0.180  0.130  
10.  Retrospective Development Premium (9 x 1 x 7)  117,600  100,800  72,800  
11.  Subtotal (3 + 5 + 8 + 10)  358,100  397,300  453,300  
12.  Tax Multiplier  1.070  
13.  Indicated Retrospective Premium (11 x 12)  383,167  425,111  485,031  
14.  Maximum Premium (14 x 1)  1.300  650,000  650,000  650,000 
15.  Minimum Premium (15 x 1)  0.600  300,000  300,000  300,000 
16.  Retrospective Premium  383,167  425,111  485,031 
Example 2:
Calculation of Retrospective Premium: First, Second and Third Adjustments
 No loss limits
 No Retrospective Development Factors
Factors  First Adjustment 
Second Adjustment 
Third Adjustment 

1.  Standard Premium  500,000  500,000  500,000  
2.  Basic Premium Factor (See Example 4)  0.145  
3.  Basic Premium (2 x 1)  72,500  72,500  72,500  
4.  Excess Loss Premium Factor  
5.  Excess Loss Premium (4 x 1 x 7)  0  0  0  
6.  Ratable Losses  150,000  200,000  275,000  
7.  Loss Conversion Factor  1.120  
8.  Converted Losses (6 x 7)  168,000  224,000  308,000  
9.  Retrospective Development Factor  
10.  Retrospective Development Premium (9 x 1 x 7)  0  0  0  
11.  Subtotal (3 + 5 + 8 + 10)  240,500  296,500  380,500  
12.  Tax Multiplier  1.070  
13.  Indicated Retrospective Premium (11 x 12)  257,335  317,255  407,135  
14.  Maximum Premium (14 x 1)  1.300  650,000  650,000  650,000 
15.  Minimum Premium (15 x 1)  0.600  300,000  300,000  300,000 
16.  Retrospective Premium  300,000*  317,255  407,135 
*Minimum of $300,000 would apply
Example 3:
Calculation of Retrospective Premium: First, Second and Third Adjustments
 Loss limits
 Retrospective Development Factors
Factors  First Adjustment 
Second Adjustment 
Third Adjustment 

1.  Standard Premium  500,000  500,000  500,000  
2.  Basic Premium Factor (See Example 4)  0.145  
3.  Basic Premium (2 x 1)  72,500  72,500  72,500  
4.  Excess Loss Premium Factor  0.360  
5.  Excess Loss Premium (4 x 1 x 7)  201,600  201,600  201,600  
6.  Ratable Losses  150,000  200,000  275,000  
7.  Loss Conversion Factor  1.120  
8.  Converted Losses (6 x 7)  168,000  224,000  308,000  
9.  Retrospective Development Factor  0.080  0.060  0.020  
10.  Retrospective Development Premium (9 x 1 x 7)  44,800  33,600  11,200  
11.  Subtotal (3 + 5 + 8 + 10)  486,900  531,700  593,300  
12.  Tax Multiplier  1.070  
13.  Indicated Retrospective Premium (11 x 12)  520,983  568,919  634,831  
14.  Maximum Premium (14 x 1)  1.300  650,000  650,000  650,000 
15.  Minimum Premium (15 x 1)  0.600  300,000  300,000  300,000 
16.  Retrospective Premium  520,983  568,919  634,831 
Example 4:
Calculation of the Basic Premium Factor
The key to establishing the Basic Premium Factor for a retrospective rating plan is the Table of Insurance Charges filed with state insurance departments. By expected loss groups, this table indicates the factors used to establish the premium charged that is vital to the determination of the Basic Premium Factor.
1. Estimated Standard Premium  $500,000 
2. Expected Losses (1) x (3)  $306,500 
3. Expected Loss Ratio  0.613 
4. Expected Limited Loss Ratio (3) – (g)  0.253 
5. Expense (Excluding Taxes) (1) x (h)  $100,500 
6. Expected Loss plus Expense Ratio [(2) + (5)] ÷ (1)  0.814 
7. Loss and Expense in Converted Losses (3) x (d)  0.687 
8. Pure Expense for Basic Premium, Excluding Loss and Expense (6) – (7)  0.127 
9. Minimum Retrospective Premium Excluding Taxes [(c) ÷ (e)]  0.561 
10. Maximum Retrospective Premium Excluding Taxes [(b) ÷ (e)]  1.215 
11. Table of Insurance Charges Value Difference [(6) – (9)] ÷ [(d) x (4)]  0.894 
12. Table of Insurance Charges Entry Difference [(10) – (9)] ÷ [(d) x (4)]  2.31 
13. Ratio of Losses for Minimum Retro Premium to Expected Limited Losses  0.04 
14. Ratio of Losses for Maximum Retro Premium to Expected Limited Losses  2.35 
15. Table of Insurance Charges – Premium Charge for (14)  0.065 
16. Table of Insurance Charges – Premium Saving for (13)  0.000 
17. Net Insurance Charge [(15] – (16)] x (4)  0.016 
18. Basic Premium Factor [(17) x (d)] + (8)  0.145 
The use of the Table of Insurance Charges is accounted for in the following explanations and illustrations of how to determine the factors and other elements needed for the operation of the Plan.
Note: The procedures described here are designed exclusively for workers’ compensation and employers’ liability insurance. Rules for the application of a retrospective rating plan to a combination of workers’ compensation and employers’ liability insurance and other lines of casualty insurance are in the Retrospective Rating Plan Manual issued by the Insurance Services Office, Inc. (ISO).
Note: The above calculations are based on the 1998 Table of Insurance Charges, using Expected Loss Group 52.
The procedure for establishing the values and factors in the above examples follows:
Line 1. Estimated Standard Premium:
This is the annual standard premium. Refer to Rule 1 item (B)(1)(f) of this Plan for the definition of standard premium. For threeyear retrospective rating plans, multiply the annual standard premium by three (3).
Line 2. Expected Losses:
The expected losses equal the estimated standard premium multiplied by the expected loss ratio. Refer to Table A in the Table of Retrospective Rating Values for the Table of Expected Loss Size Ranges.
For an interstate risk, the expected losses equal the sum of the products of the estimated standard premium for each state and the corresponding expected loss ratio for each state. For the purpose of this example, it has been assumed that the risk is intrastate with an expected loss ratio of .613, which produces expected losses of $306,500 ($500,000 x .613).
Line 3. Total Expected Loss Ratio:
This is the loss ratio for the risk obtained by dividing the total expected losses for all states covered by the retrospective rating plan by the total standard premium.
Line 4. Expected Limited Loss Ratio:
This ratio is determined by subtracting the excess loss factor from the expected loss ratio.
Line 5. Expense and Profit or Contingency – Excluding Taxes:
The expense and profit or contingency (excluding taxes) is determined by multiplying the standard premium by the applicable expense ratio.
Note: For New York, these are carrier expense ratios; the Rating Board does not publish Tables of Expense Ratios.
For a threeyear plan, values are determined similarly for each of the years based on each annual estimated standard premium, and the sum of these values is the provision for expense and profit or contingency. The value for expenses shown in this example is equal to $100,500 ($500,000 x .201).
Line 6. Expected Loss and Expense Ratio:
This ratio is obtained by dividing the expected losses plus the expenses and profit or contingency (excluding taxes) by the standard premium.
Line 7. Loss and Expense in Converted Losses:
This factor, which expresses the ratio of expected losses and loss expense to estimated standard premium, is the product of the expected loss ratio and the loss conversion factor.
Line 8. Expense and Profit or Contingency in Basic Premium:
The difference between the factor in line 6, representing the total net premium provision for the employer under the retrospective rating plan, and the factor in Line 7, representing expected losses and loss adjustment expense insuring the risk, is the expense and contingency amount, and must be included in the basic premium.
Line 9. Minimum Premium Retrospective Factor – Excluding Taxes
Line 10. Maximum Premium Retrospective Factor – Excluding Taxes
Line 11. Table of Insurance Charges – Value Difference
Line 12. Table of Insurance Charges – Entry Difference
Lines 9 through Line 12 are determined in a way designed to facilitate the testing process by which the basic premium factor is established. The factors entered for these items are obtained as indicated in the example.
Line 11, Table of Insurance Charges – Value Difference equals the difference between the table charge for the entry ratio from which the savings is taken and the table charge for the entry ratio from which the charge is taken.
Line 12, Table of Insurance Charges – Entry Difference equals the difference between the entry ratios that determine the savings factor and the charge for the maximum premium.
To use the Table of Insurance Charges, find the loss group in the Expected Loss Ranges in the table containing adjusted expected loss value. The adjusted expected loss value:
Line 2 x State and Hazard Group Differential x Loss Group Adjustment Factor
The Loss Group Adjustment Factor (F) applies when an individual loss limit is selected. The factor is:
F  =  1 + ((.8)(LER)) 
1  LER 
where the LER = ELF ÷ Item (3) = .36 ÷ .613 = .587
F  =  1 + ((.8)(.587))  =  3.558 
1 – (.587) 
S/H Differential = .750
The loss group is 52 (group that contains 229,875 (306,500 x .750)).
Then, choose two entry ratios from the Expected Loss Group in the table with a difference equal to Line 12. Make this choice so that the difference in the charges for the Expected Loss Group and for the selected entries most closely approximates Line 11.
To illustrate this testing procedure, several entry ratios and their corresponding charges in Group 52 have been reproduced from the Table:
Entry Ratio  Charges (Group 52)  Savings 
.03  .970  .000 
.04  .960  .000 
.05  .950  .000 
Entry Ratio  Charges (Group 52) 
2.34  .065 
2.35  .065 
2.36  .064 
Choose and list pairs of entry ratios with a difference equal to Line 12, in this case 2.31, and note the respective difference in these charges:
(.03, 2.34)(.970  .065)  =  .905 
(.04, 2.35)(.960  .065)  =  .895 
(.05, 2.36)(.950  .065)  =  .886 
The pair of entry ratios whose charge difference most closely approximates Line 11 is recorded under Lines 13 and 14.
Line 13. Ratio of Losses Producing Maximum Retrospective Premium to Expected Losses
Line 14. Ratio of Losses Producing Minimum Retrospective Premium to Expected Losses
Lines 13 and 14 are the pair of table entry ratio values determined by the process outlined previously.
Line 15. Premium Charge for (14):
Given the loss group adjustment factor 16, this is the premium charge for losses in excess of those provided by the maximum retrospective premium. It is obtained by reading from the table as shown in Line 12.
Line 16. Premium Savings for (13):
This is the premium saving for losses less than those that would produce the minimum retrospective premium. The values for premium savings are listed directly beneath the charge values in the Table of Insurance Charges. In this example, the savings of .000 for entry ratio 04 (Line 13) in Group 52 is found directly beneath the charge value of .960.
Line 17. Net Insurance Charge:
The net insurance charge is determined by calculating the difference between the charge for possible losses that might produce more than the maximum retrospective premium (Line 15) and the saving for losses that might produce less than the minimum retrospective premium (Line 16), and then multiplying that difference by the product of the expected loss ratio or the expected limited loss ratio (Line 4 in the example). The net premium charge may be less than zero, as long as the basic premium factor is not negative.
Line 18. Basic Premium Factor:
The basic premium factor is the sum of the net insurance charge (Line 17) times the loss conversion factor (d), and the expenses and profit and contingencies in the basic premium expressed as a percentage of the standard premium (Line 8). The standard premium multiplied by the basic premium factor produces the basic premium used in computing the retrospective rating plan premium.
The cancelation conditions of the standard policy permit cancelation by the employer or carrier. The premium determination for a canceled policy is outlined in Rule IX “Cancelation” of the New York Workers’ Compensation and Employers’ Liability Manual.
 Reasons for Cancelation and Retrospective Rating Premium Determination
Cancelation Provisions – Table 1
If…. Then… The policy is canceled by the carrier, except for nonpayment of premium  The standard premium for the canceled policy is calculated on a prorated basis as outlined in the New York Workers’ Compensation & Employers’ Liability Manual.
 Basic premium and, if applicable, excess loss premium and retrospective development premium is calculated by using the prorata standard premium calculated in 1.
Cancelation Provisions – Table 2
If…. Then… The policy is canceled by the employer when retiring from business such that:
 All the work covered by the policy has been completed, or
 All interest in any business covered by the policy has been sold, or
 The employer has retired from all business covered by the policy
 The standard premium for the canceled policy is calculated on a prorated basis as outlined in the New York Workers’ Compensation & Employers’ Liability Manual.
 Basic premium and, if applicable, excess loss premium and retrospective development premium is calculated by using the prorata standard premium calculated in 1.
Cancelation Provisions – Table 3
If…. Then… The policy is canceled by the employer except when retiring from business  The standard premium for the canceled policy is calculated on a short rate basis as outlined in the New York Workers’ Compensation & Employer’s Liability Manual.
 Basic premium and, if applicable, excess loss premium and retrospective development premium is calculated by using the short rate standard premium calculated in 1.
 Minimum retrospective rating premium is the short rate standard premium cancelation.
 Maximum retrospective rating premium is based on standard premium. It is calculated by using the actual payroll for the period the policy was in effect, extending that payroll prorata to an annual basis, and then multiplying such extended payroll by the authorized rates and experience rating modification.
 Cancelation for Nonpayment of Premium
If the cancelation by the carrier is because of nonpayment of premium by the employer, the maximum retrospective rating premium is based on the calculated standard premium for the canceled policy.
 Example of a Short Rate Calculation of Maximum Retrospective Premium
If the cancelation by the carrier is because of nonpayment of premium by the employer, the maximum retrospective rating premium is based on the calculated standard premium for the canceled policy.
Assume: Policy in effect 185 days Authorized Rate (per $100 payroll) $5.00 Actual payroll for 185 days $555,000 Experience Rating Modifications 1.10 Maximum Retrospective Premium Factor 1.60 
Payroll extended to an annual basis:
$555,000 X 365 days = $1,095,000 185 days 
Annual Standard Premium = $1,095,000 x 5.00 (per $100) = $54,750

Modified Premium = $54,750 x 1.10 = $60,225

Maximum Retrospective Premium: $60,225 x 1.60 = $96,360

Upon agreement between the carrier and the employer, and in conjunction with a retrospective rating plan, the carrier may enter into a financial arrangement with the employer in which the full deposit premium is not paid to the carrier at policy inception. Under this arrangement, the employer is able to retain the use of its funds until losses are actually paid by the carrier.
A paid loss retrospective rating plan is subject to the following conditions:

Eligibility for this Plan requires an estimated annual standard premium of no less than $500,000. All states and policies referred to in the filing may be included in determining eligibility.

Collection at policy inception of a charge equal to no less than onequarter of expected losses. This amount should be increased by the Loss Conversion Factor to cover claim adjustment expenses.

Collection at policy inception of a prorated Basic Premium Charge. The Basic Premium Charge is derived by multiplying the Basic Premium Factor in the Plan by the standard premium.

Collection over the policy term of a charge equal to the Excess Loss Premium (when a loss limitation is chosen). Excess Loss Premium is equal to the Excess Loss Factor multiplied by the standard premium.

Collection of a charge to cover premium tax derived by applying the Tax Multiplier to the standard premium.

A charge for the loss of the use of funds may also be applied by the carrier. However, use of this charge must be clearly stated in each Plan.

Changes in any of the amounts referred to in items 2. through 6. above are to be billed or returned at the time of the first retrospective rating adjustment.

A letter of credit meeting the requirements of New York State Department of Financial Services Regulation 133 is required to secure the balance of the standard premium due when the program is established. This is subject to modification as payments are made in subsequent periods. At the option of the carrier, a demand note may be required to accompany the letter of credit.

At the time of the first retrospective rating adjustment, the premium due, but not as yet paid, is the difference between the retrospective premium and the amount collected thus far under the paid loss plan.

Upon agreement between the carrier and the employer, at the time of a specified retrospective rating adjustment, the paid loss retrospective rating program will revert to a conventional retrospective rating plan. Generally, this will occur at the time of the fourth or fifth adjustment. Subsequent adjustments are made in the same manner as the conventional plan, or one final adjustment may be made based on an agreed upon ultimate loss calculation.

In the event of cancelation of coverage at the employer’s request or the carrier’s request, as a result of nonpayment, the accountings and all subsequent payments will be adjusted in accordance with the cancelation rules contained in item (G) of this Rule.