Experience Modifier - Formula and Calculations

Formula and Calculations

The formula primarily used by the NCCI is the following.

\frac{I+(C*(1-A)+G)+(A*F)}{E+(C*(1-A)+G)+(A*C)}

A = Weight Factor G = Ballast I = Actual Primary Losses H = Actual Incurred Losses F = Actual Excess Losses (H-I) E = Expected Primary Losses D = Expected Incurred Losses C = Expected Excess Losses (D-E)

The formula is broken down into 3 main categories or subsections for understanding.

  1. Primary Losses
    • Primary losses show up as both I and E in the above formula, E is for "Expected" primary losses vs actual. This expected value is determined based on a company's payroll cost with a little actuarial calculations.
  2. Stabilizing Value
    • This is a calculation based on expected excess losses, a mysterious weighting factor, and a mysterious Ballast factor.
    • The weighting factor and Ballast factor are called mysterious since they are determined again with actuarial voodoo and the method for determining them is not published publicly.
  3. Ratable Excess
    • Using the weighting factor the Ratable excess is simply the excess losses times this factor.

These 3 categories are summed up, with Actual numbers divided by Expected numbers, notice that the Stabilizing value does not change between the numerator and denominator.

\frac{ActualPrimaryLosses + StabilizingValue + ActualRatableExcess}{ExpectedPrimaryLosses + StabilizingValue + ExpectedRatableExcess}

Read more about this topic:  Experience Modifier

Famous quotes containing the words formula and/or calculations:

    “I feel like a white granular mass of amorphous crystals—my formula appears to be isomeric with Spasmotoxin. My aurochloride precipitates into beautiful prismatic needles. My Platinochloride develops octohedron crystals,—with a fine blue florescence. My physiological action is not indifferent. One millionth of a grain injected under the skin of a frog produced instantaneous death accompanied by an orange blossom odor.”
    —Lafcadio Hearn (1850–1904)

    “He who is conversant with the supernal powers will not worship these inferior deities of the wind, waves, tide, and sunshine. But we would not disparage the importance of such calculations as we have described. They are truths in physics because they are true in ethics.”
    —Henry David Thoreau (1817–1862)