Loss-based return and additional premium provisions in conventional loss-based rating plans, e.g., incurred loss retrospectively rated insurance and so-called "retention plans" used commonly in insuring US Workers' Compensation, are generally not considered Commutation Provisions for much the same reason.
Effective the Commutation Date, the Policyholder and the Insurer, finally and irrevocably release each other from any and all liability and obligations to each other under or in connection with this Policy, whether billed or unbilled, whether reported or unreported and whether known or unknown; provided that, upon the Commutation, the Insurer shall pay to the Policyholder an amount equal to the Loss Experience Account.
[citation needed] "Experience account" when used in the context of finite risk refers to a provision in an insurance or reinsurance contract that, using some function of premium, insurer charges, losses paid or payable under the contract, subrogation proceeds, and interest rates, forms the basis of an explicit or notional fund that can then be used to calculate the amount due under an additional premium provision.
An example, appropriate for a finite risk insurance policy, might look like this: A notional loss experience account will be created at the Inception Date, for use in evaluating amounts due under the commutation provision, which shall be updated annually thereafter as of the last day of each calendar year so long as this Policy remains in effect.
As of the inception date, the beginning balance will be equal to 100 percent of the premium, less brokerage fees, less the insurer margin.