Page 180 - Liability Insurance IC74

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a maximum amount, in addition to the percentage limit.
It is observed that the ceding company has to bear 20%
of all losses in excess of the agreed loss ratio.

This will make the ceding company to follow a healthy
underwriting policy and effect strict control in claims
settlements. The rate of premium is calculated on the
ceding company's premium income and is based on past
experience, nature of business, the limits of cover etc.

This form of reinsurance, is mainly suitable for a class
of business in which small losses accumulate throughout
the year. It is not common in liability insurance in which
it is difficult to arrive at the annual loss ratio because of
the protracted nature of many liability claims which may
take many years for settlement.

This treaty however may be suitable for products liability
insurance where there is a possibility of an aggregate
of small losses which cannot be traced to any one event
or occurrence. The stop loss reinsurance may be
arranged in addition to the normal surplus or excess of
loss treaties.

Repeat of Q10 of Nov 2008 & Q7(b) of May 2008

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