A. PURPOSE

The negotiating process between the insured and carrier is the basis on which a retrospective rating plan provides flexibility in order to meet the needs and characteristics of an insured. As a result of this negotiation, factors for a retrospective rating plan are determined for each insured by agreement between the insured and carrier. A completed Notice of Election of Retrospective Rating Plan form signed by the insured outlines the parameters for a retrospective rating plan. Refer to Appendix for appropriate New York forms.

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.

B. EXPLANATION OF TABLES IN APPENDIX

The following is an explanation of the tables used in the calculation of retrospective rating premium:

Table Appendix Purpose
Table of Expected Loss Ranges A Used to determine the expected loss group in the Table of Insurance Charges.
Table of Insurance Charges B Used to determine the insurance charge to be included in the basic premium factor.
Tables of Expense Ratios C Used in the calculation of basic premium. These tables are developed by individual carriers in New York.
Table of Classifications by Hazard Group D Used in the determination of excess loss factors.
Tables of Excess Loss Pure Premium Factors E Used to determine excess loss factors.
Table of Excess Loss Factors for Federal Classifications F Used to determine excess loss premium for federal classes.
Table of Loss Limitations for Ex-Medical Policies G Used to determine accident limitation amount on ex-med policies.

C. THE RETROSPECTIVE RATING PREMIUM WITHOUT ELECTIVE PREMIUM ELEMENTS

The premium for an insured 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 insured 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: Insureds 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 insureds may be retrospectively rated as mutually agreed upon by the insured and carrier. Refer to Rule 2-E.

 

D. THE RETROSPECTIVE RATING PREMIUM FORMULA WITH ADDITIONAL ELECTIVE PREMIUM ELEMENTS


The premium for a retrospective rating plan with elective premium elements is determined by the following retrospective 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 insured 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.

Refer to Appendix for examples.

E. CALCULATION OF RETROSPECTIVE RATING PREMIUM


Under these rules, retrospective rating premiums are always calculated by the carrier, using premium and loss data that has been reported according to the workers compensation statistical plan. The number of subsequent calculations is determined as part of the agreement between the insured and carrier.

  1. 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 insured and return premium if the retrospective rating premium is less than premium previously paid, or the insured 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 insured has filed for, or is in, bankruptcy, liquidation, reorganization, receivership, assignment for benefit or creditors, or other similar situations.
     

  2. 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 12 months after the initial calculation and then in 12-month intervals thereafter. The procedures for the subsequent calculations are the same as described in Rule 3-E-1.
     
  3. Final Calculation of Retrospective Rating Premium

    Subsequent calculations of retrospective rating premium will be issued by the carrier in accordance with Rule 3-E- 2 until both the insured 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 Appendix for examples.


     

 

F. CANCELLATION OF A POLICY UNDER A RETROSPECTIVE RATING PLAN

The cancellation conditions of the standard policy permit cancellation by the insured or carrier. The premium determination for a cancelled policy is outlined in the New York Workers Compensation and Employers Liability Manual.

  1. Reasons for Cancellation and Retrospective Rating Premium Determination
Cancellation Provisions—Table 1
If…
Then…
The policy is cancelled by the insurance carrier, except for nonpayment of premium
  1. The standard premium for the cancelled policy is calculated on a pro-rated basis as outlined in the New York WC&EL Manual.
  2. Basic premium and, if applicable, excess loss premium and retrospective development premium is calculated by using the pro-rata standard premium calculated in 1.
 
Cancellation Provisions—Table 2
If…
Then…

The policy is cancelled by the insured 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 insured has retired from all business covered by the policy
  1. The standard premium for the cancelled policy is calculated on a pro-rated basis as outlined in the New York WC&EL Manual.
  2. Basic premium and, if applicable, excess loss premium and retrospective development premium is calculated by using the pro-rata standard premium calculated in 1.
 
Cancellation Provisions—Table 3
If…
Then…

The policy is cancelled by the insured, except when retiring from the business

  1. The standard premium for the cancelled policy is calculated on a short rate basis as outlined in the New York WC&EL Manual.
  2. Basic premium and, if applicable, excess loss premium and retrospective development premium is calculated by using the short rate standard premium calculated in 1.
  3. Minimum retrospective rating premium is the short rate standard premium cancellation.
  4. 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 pro-rata to an annual basis, and then multiplying such extended payroll by the authorized rates and experience rating modification.
  1. Cancellation for Nonpayment of Premium

    If the cancellation by the carrier is because of nonpayment of premium by the insured, the maximum retrospective rating premium is based on the calculated standard premium for the cancelled policy.  Refer to the Appendix for an example.

G. PAID LOSS RETROSPECTIVE RATING PLAN

Upon agreement between the carrier and the insured, and in conjunction with a retrospective rating plan, the carrier may enter into a financial arrangement with the insured in which the full deposit premium is not paid to the insurance carrier at policy inception. Under this arrangement, the insured 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:

  1. 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.

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

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

  4. 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.

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

  6. 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.

  7. 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.

  8. A letter of credit meeting the requirements of New York State Insurance Department 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.

  9. 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.

  10. Upon agreement between the carrier and the insured, 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.

  11. In the event of cancellation of coverage at the insured's request or the insurance company's request, as a result of non-payment, the accountings and all subsequent payments will be adjusted in accordance with the cancellation rules contained in Rule 3.F. of this Plan.

    Note: The insured is required to replenish the deposit loss fund periodically throughout the program to maintain the initial loss fund deposit. If the paid loss plan is terminated prior to the calculation of the first retrospective rating adjustment and the actual paid losses exceed the amounts in the loss fund, the insured will be required to contribute any and all amounts due the carrier.