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Q10. Explain the concept of retrospective rating
with the help of examples.

Ans. While experience rating and some forms of composite
rating assume that the past, with appropriate adjustments,
is predictive of the future, retrospective rating uses the
experience during the period to determine the costs for
the period.

This approach makes costs based on retrospective rating
plans, more responsive to changes in experience than is
the case with experience rating or composite rating plans.
However, retrospective rating is very similar to
prospective experience rating in many ways.

Like with experience rating, actual losses, and sometimes
ALAE are compared to expected losses and (ALAE) ,
although in this case, they are both for the current period.
Several different experience and exposure combinations
can be used, like :
(i) Actual paid losses (and ALAE) at a particular date

and the expected paid losses and (ALAE) at that
date, both for the experience period.

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