Glossary

Retrospective rating

A rating plan that sets the final premium after the policy ends from the insured's actual losses in that period, within a minimum and a maximum.

Also called: retro rating, retro plan, retrospective rating plan, retro premium

Under a retrospective rating plan, the premium you finally pay depends on your own losses during the policy period. You pay a deposit premium at inception. Later the insurer recalculates using incurred losses and either bills more or returns some. The standard formula is retrospective premium = (basic premium + converted losses) × tax multiplier, limited by a minimum and a maximum premium. Basic premium covers the insurer's expenses and the risk of the cap. Converted losses are incurred losses times a loss conversion factor that loads claims-handling cost. The multiplier covers premium taxes and assessments.

Plans are used mainly in workers' compensation, under NCCI's retrospective rating rules, and sometimes in general liability and auto for larger accounts. Adjustments typically begin about 18 months after the policy starts and repeat annually until claims close.

Say a hypothetical employer has $300,000 of standard premium, a $150,000 minimum and a $390,000 maximum. A very good year pulls the final premium toward $150,000. A bad year cannot push it past $390,000.

The pitfalls are development and collateral. Claims often grow after the first adjustment, so a good early result can reverse. Insurers also commonly require a letter of credit or other collateral, and closing out a plan can take years. It suits an employer with strong safety controls that can absorb swings. The guide on how workers' comp premiums are calculated places it among the other rating tools, and large deductible workers' comp programs: how they work and what they cost covers the alternative.

Last reviewed October 10, 2026

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Related terms

Experience modification rate (EMR) A multiplier on workers' compensation premium comparing an employer's actual claim losses with the losses expected for its industry and size. Schedule rating An underwriter's credits or debits to manual premium for risk traits that manual rates miss, such as premises condition, safety program or management quality. Large deductible program A policy where the insurer pays claims and then bills you for losses up to a high per-claim deductible, in return for lower premium and secured collateral. Premium audit The insurer's after-the-fact review of payroll, sales or other exposures that replaces the pricing estimates, producing an additional or return premium. Loss control The inspections, safety programs and physical improvements that a business and its insurer use to make claims less frequent and less severe.

Related guides

How to lower your workers' comp costs Ways to reduce workers' comp premium: correct class codes and payroll, prevent and manage claims, protect your mod, and choose the right program structure. The workers' comp claims process for employers What happens after a workplace injury for the employer: care, reporting deadlines, the insurer's decision, benefits, return to work and the effect on your mod. Workers' comp settlements and the employer's role How workers' comp claims settle, why states treat lump sums and medical closure differently, what Medicare set-asides require, and the employer's role.

Related insurers

Amerisure Michigan mutual founded in 1912 that insures mid-sized construction, manufacturing and healthcare firms nationwide through select independent agencies. Applied Underwriters Omaha-based, founder-owned insurer known for its EquityComp and SolutionOne comp programs, now writing specialty liability, auto and aviation coverage. Core Specialty Cincinnati specialty insurer built from StarStone U.S. in 2020; writes E&S and admitted casualty, property, Lancer auto, comp and bonds via brokers. Encova Insurance Columbus, Ohio mutual formed from Motorists and BrickStreet; workers' comp in 26 states and D.C. and business packages in 22, sold by independent agents. New York State Insurance Fund (NYSIF) New York's state agency fund for workers' comp, disability and paid family leave. It competes with private carriers and must take any employer that applies.