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THE FOLLOWING ARE SOME OF THE DEFINITIONS REGARDING REINSURANCE:
ESTIMATED MANUAL PREMIUM: The total of state produced manual insurance rates times each
$100 of payroll for each classification of employee. (e.g. Clerical, Drivers, etc.).
EXPERIENCE MODIFICATION FACTOR: The excess carrier's modification is based on an
evaluation of state benefit levels, hazards of your risk, trending of your loss
experience, size of manual premium and other factors of concern to the reinsurer.
STANDARD PREMIUM: Manual premium times the experience modification. Average experience
results in a factor of 1.00. Less than average is a factor in excess of 1.00, such as
1.09. Better than average is less than 1.00, such as .98.
LOSS FUND FACTOR: The percentage applied to Standard or Normal Premium which results in
the amount of the Loss Fund.
MINIMUM RETENTION: The lowest aggregate loss fund amount that the excess carrier will
accept after the contract period payroll audit. This provides a buffer in the event of a
large layoff or the selling of a division or the cancellation of the policy by the self
insurer.
AGGREGATE LIMIT: This is the policy limit for the aggregate portion of the policy in
excess of the loss fund.
SPECIFIC RETENTION: This is the amount of deductible per occurrences (one or more claims)
that is charged to the loss fund.
SPECIFIC LIMIT: This is the limit of the specific portion of the policy. It is a per
occurrence limit.
REINSURANCE PREMIUM RATE: This is the policy premium rate for both aggregate and specific
coverages.
REINSURANCE PREMIUM: The premium developed by applying the rate times the normal premium.
If a two-year plan, it will reflect a two-year premium.
MINIMUM PREMIUM: The minimum premium accepted by the carrier after payroll audit and is
stated on the policy.
DEPOSIT PREMIUM: The premium required at inception of the policy year. In the case of
two-year plan, it will be the equivalent of one year's premium.
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