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abc123
10-05-2006, 09:51 PM
How does RDP (retrospective development premium) work? Is my following understanding right? If an insured elects RDP, then the third premium adjustment is final. ???
3tac
10-06-2006, 08:26 AM
Yes, you are correct.
Kamcio
10-07-2006, 02:49 AM
How does RDP (retrospective development premium) work? Is my following understanding right? If an insured elects RDP, then the third premium adjustment is final. ???


I wouldn't agree. Page 5 of the Retro plan, left column, the last sentence reads: "The RDP is included only in the first three adjustments of the retro premium and is not included in any later premium computations."

Based on that, I think while RDP is added in the first 3 adjustments, the adjustments (without RDP) continue forever, or until agreed to finish by both parties.

"Limitation" - I'm only guessing here based on the reading of the manual...
Sew Lining
10-07-2006, 03:31 AM
It isn't final until both the insured and the insurer agree that it's final. Somebody correct me if I'm wrong.
sciolist
10-09-2006, 01:34 PM
It was explained to me this way: The first Retro Adjustment or two usually gives premium back to the Insured Company (losses come in low); after a year or two the claims have developed and the third Retro Calculation then requires the Insured Company to gives that premium and possiblity more back to the Insurance Provider.

The Retro Dev premium is intended to level out the first three Premium evaluations so the cash isn't trading hands until the claim data is mature enough to be more reliable.

It doesn't say that anywhere in the paper, so I can't vouch for the acuracy, but that's what I was told.
3tac
10-09-2006, 02:06 PM
It was explained to me this way: The first Retro Adjustment or two usually gives premium back to the Insured Company (losses come in low); after a year or two the claims have developed and the third Retro Calculation then requires the Insured Company to gives that premium and possiblity more back to the Insurance Provider.

The Retro Dev premium is intended to level out the first three Premium evaluations so the cash isn't trading hands until the claim data is mature enough to be more reliable.

It doesn't say that anywhere in the paper, so I can't vouch for the acuracy, but that's what I was told.

You are correct. The initial question (or how I read it) was asking if RDP was included in the 1st 3 adjustments, with the 3rd being the final RDP adjustment. The answer is yes. That however does not mean there are no future premium adjustments after that 3rd evaluation. The premium adjustments continue until the claims are settled or the insured and insurer agree to a mutual settlement.

Logically, this makes sense. In WC (a long-tail line), how much info do you have about claims after only 3 adjustments (1st one at 18 mos and then annually thereafter) or at 42 mos? Not enough to call the retro premium final.