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Foundations of Casualty Actuarial Science

(ii) Reported losses (and ALAE) at a particular date
and the expected reported losses (and ALAE) at
that date, both for the experience period, and

(iii) Projected ultimate losses (and ALAE) and the
expected losses, both for the experience period.

As with experience rating, the experience component
should be related to the exposure component and to the
basis on which policies are written or funding occurs. If
the costs to be allocated include ALAE, ALAE should
be included with losses in the calculation.

The length of the retrospective rating period is usually
one year or three years. As with experience rating, the
shorter the period, the more responsive the plan will be
to changes that truly affect loss and ALAE experience,
such as changes in the risk control program, and the
more subject to unusual fluctuations in loss and ALAE
experience, and vice versa.

Retrospective rating plans may also limit losses (and
ALAE) per occurrence and in aggregate to reduce the

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