Page 40 - Reinsurance Management IC85
P. 40
Reinsurance Management
Q. "The variable rating system in excess of loss
covers is fair and equitable to both the
reassured and reinsurers". Discuss.
The rating for excess of loss covers can be either
on fixed rate basis or rates based on burning costs.
Since the number and frequency of losses affecting
the cover cannot be forecast in advance, it is difficult
to rate a Working Excess of Loss cover on a fixed
rate basis.
Burning cost represents the ratio of claims paid and
outstanding for the excess of loss cover to the premium
income of the portfolio protected. This ratio is also
known as "pure burning cost".
It is loaded with an agreed percentage, usually 100/70,
for factors such as acquisition costs, reserve,
management expenses and profit to arrive at "loaded
burning cost" which forms the basis for the rate under
variable rating method.
It is also usual to fix a maximum and minimum
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