Credibility Weighting Actual to Expected Losses

The Credible Actual Primary Loss is the weighted average:
(Actual Primary Loss) x (Primary Credibility) + (Expected Primary Loss) x (100% - Primary Credibility).

and the Credible Actual Excess Loss is the weighted average:
(Actual Excess Loss) x (Excess Credibility) + (Expected Excess Loss) x (100% - Excess Credibility).

A weighted average of the firm's Actual Losses and the firm's Expected Losses is taken to get the Credible Actual Loss. This weighting is done separately for the Primary and Excess losses. The weight assigned to a firm's Actual Losses is called the credibility and the weight assigned to the firm's Expected Losses is 100% minus the credibility. More credibility is assigned to firms with larger Expected Losses and less credibility to firms with smaller Expected Losses. The Credibility Table in WAC 296-17-880 (www.leg.wa.gov) shows the primary and excess credibility values based upon the firm's Expected Loss size.

These calculations are shown in the WAC 296-17-855 (www.leg.wa.gov).

Examples

The following two examples include the calculation of the Credible Actual Primary Loss and the Credible Actual Expected Loss.

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