Page 41 - Reinsurance Management IC85
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rate to the loaded burning cost. This gives the
advantage that the reinsurer is assured of a
minimum premium even if the burning cost during
a period is Zero.
On the other hand, the reinsured will not be called
upon to pay more than the maximum rate even if the
claims experience during a period is worse. Usually,
the rate on burning cost is based on 3 to 5 years
average period and is given a fair trial over a long
term basis of say, 3 years.
Thus, it may be seen that the variable rating basis aims
at adjusting the cost of excess of loss protection by
varying the rate according to claims experience. Hence,
this method is fair and equitable to both reinsurer and
reinsured.
Q. a. Explain the term "Burning Cost".
b. Calculate the excess of loss premium
payable in the following instance.
GNPI for the year Rs. 10,00,000 Incurred
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