Page 73 - Liability Insurance IC74

Guide for Liability Insurance

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.

(c) burning cost - there are various methods of
computing reinsurance premium. A common method
used to compute at a rate percent on the ceding
company's 'Gross Net' premium income which means
the original cross premium less the premium is seeded

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