Swing rate definition
I can't seem to find the definition of swing rate in the reading. Could someone share some thought on what it means?
Thank you
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I can't seem to find the definition of swing rate in the reading. Could someone share some thought on what it means?
Thank you
Comments
Hello,
A swing rate is associated with retrospectively rated reinsurance policies. Without going into too much detail, retrospectively rated policies are basically policies where the insured pays a premium up front, and this premium is then augmented to a higher or lower level depending on the actual loss experience of the underlying policy.
For example, the insured could pay 15% of Direct premium (Provisional Rate) up front to the reinsurer, and this premium can then vary by say +-10% (Swing Rate) depending on actual experience - The final premium could be anywhere between 5% to 25% of direct premium based on actual loss experience. Sometimes instead of a swing rate, the policy can specify a maximum or minimum premium instead.
You will learn more about this in Exam 8 and I don't think you have to be too concerned about this for Exam 6.