loss rating
A term applied to a rating technique often used for larger insureds in which
that insured's past loss history is used to establish a prospective rate. The
past losses are developed and trended, as appropriate, and divided by the amount
of a selected exposure base to determine a relationship between the exposure
and loss experience. Assuming that the historical data are credible, the resultant
factor (loss rate) divided by the insurer's acceptable, or permissible, loss
ratio becomes the prospective rate. In some cases, the loss rate is modified
to account for possible variations between expected and actual losses before
it is converted into the prospective rate.
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