loss rating

Loss rating is a rating technique often used for larger insureds in which that insured's past loss history is used to establish a prospective rate.

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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.