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Su, Yuchen, Brian H. Stein, and John P. Robertson. 2023. “D-Ratios and Credibility in Experience Rating.” Variance 15 (2).
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  • Figure 1. 10th and 90th percentiles of mods by state
  • Figure 2. Quintile tests for high and low G-value NCCI gross experience rating ERA states
  • Figure 3. D-ratios by state
  • Figure 4. Primary and excess credibility by expected claim count
  • Table 1. Constants \(k_1, . . . , k_8\) used in experience rating

Abstract

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.

© Copyright 2022 National Council on Compensation Insurance, Inc., John P. Robertson, and Yuchen Su. All Rights Reserved.

Accepted: November 21, 2021 EDT