Some large insureds prefer to pay a premium that ultimately reflects their own losses. Retrospective rating sets an initial premium and then adjusts it after the policy period according to the actual losses that emerged, subject to a minimum and maximum.

The formula typically multiplies losses by a loss-conversion factor, adds basic premium for expenses and profit, and applies tax multipliers. The result is compared with the negotiated minimum and maximum premiums; the final billed amount cannot fall outside those bounds. Losses may be limited per claim to prevent a single catastrophe from dominating the calculation.

Retrospective plans reward strong safety performance with lower final premiums and penalize poor experience. They require sophisticated claims handling and clear agreement on which losses enter the calculation. The approach is common in workers’ compensation and general liability for larger accounts.

• Premium adjusted after the period based on actual losses
• Subject to minimum and maximum amounts
• Rewards good loss experience
• Used mainly for larger commercial risks