Su, Yuchen, Brian H. Stein, and John P. Robertson. 2023. “D-Ratios and Credibility in Experience Rating.” Variance 15 (2).
• Table 1. Constants $$k_1, . . . , k_8$$ used in experience rating
The American Academy of Actuaries defines credibility as a measure of the predictive value that the actuary attaches to a particular set of data in a given application. In currently common notation and terminology used for workers compensation experience rating, $$Z_p$$ and $$Z_e$$ denote primary and excess credibilities. This article shows for the first time that in NCCI’s Experience Rating Plan, the weight given to the reported primary loss ratio is $$Z_pD$$, where $$D$$ is the insured’s average D-ratio, and the weight given to the reported excess loss ratio is $$Z_e (1 – D)$$. We use this viewpoint to show an underlying similarity between NCCI’s and California’s workers compensation experience rating plans, to explain recent state-level performance of NCCI’s Experience Rating Plan, and to discuss interstate mods across states with differing experience rating plans.