Basic definitions of insurance charge and insurance savings.
Can you give really dumbed down definitions, their purpose and maybe an example of what the insurance charge and insurance savings are and how they relate to the retro premium? I understand how to calculate them and where they are on a Lee chart, but I'm having difficulty understanding their purpose.
Thanks.
Comments
The retro premium consists of the basic premium plus the converted ratable losses, all multiplied by the tax multiplier. The ratable losses are the insured's actual experience within the bounds of the per-occurrence and/or aggregate limits/deductibles. The basic premium is a fixed charge that covers expenses which do not vary with claims, plus the net insurance charge.
The net insurance charge accounts for the expected loss in excess of the per-occurrence limit/deductible and the expected loss in excess of any aggregate limit/deductible. It also accounts for any savings resulting from minimum or maximum premium constraints.
A maximum premium constraint is the same as specifying an aggregate loss limit.
The insurance charge is the expected loss in excess of the per-occurrence limit/deductible. Depending on whether it is calculated using a Limited Table M or a Table L determines whether it just accounting for the per-occurrence limit/deductible or also taking into account an aggregate limit/deductible.
The insurance savings reflects the difference between the expected losses and a minimum premium. It credits these back to the insured so we don't double count with the ratable losses.