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Nontraditional risk financing mechanisms may use
different exposure bases for different costs. For e.g,
for a public entity workers compensation pool, the
exposure base for all administrative costs may be full-
time-equivalent (FTE) employees.

Individual entities allocating risk financing costs to units
may use different exposure bases for different costs.
And some costs, such as the cost of a policy that applies
only to one unit, may be allocated without using the
experience rating plan.

(iii) Credibility - The actual (experience) and expected
(exposure) components of the experience rating
calculation are weighted to produce the costs the entity
under consideration need to pay.

The weight assigned to the experience component is
called 'credibility' and commonly denoted by 'Z'. The
weight assigned to the exposure component is 1 - Z.
This is also called the credibility compliment. Credibility
reflects the degree of belief that the entity's experience

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