What is the Retro formula used for?

The Retro formula is specifically designed for estimating insurance premiums after claims have occurred. This calculation is crucial in the context of workers' compensation and liability insurance, where the premium can be adjusted based on the claims experience of the insured party. The Retro formula uses historical loss data to determine how much of the premium should be returned to the insured if they have fewer or less severe claims than expected, helping to align the cost of insurance with actual risk.

In the context of insurance, this method ensures that the premiums charged reflect the true risk associated with the insured entity. By analyzing past claims and their financial impact, insurers can more accurately assess current premiums, allowing for fair pricing and better risk management for both the insurer and the insured.