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Foundations of Casualty Actuarial Science
factor. The credibility factor applied to the actual primary
losses is higher than that applied to the actual excess
losses.
The formula to determine the experience modification
is as follows :
M = AP + B + (Ae X w) + [ (1 - w) X Ee ]
Ep + B + (Ee X w) + [ (1 - w) X Ee]
Where
M = Experience Modification Factor
Ap = Actual Primary Loss
Ep = Expected Primary Loss
Ae = Actual Excess Loss
E = Expected Excess Loss
e
B = Ballast Value
w = Excess Losses Weighting Factor
Note , the denominator of this formula equals E + B
Where
E = Excess Losses
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