Question

How is the rate of premium agreed upon in the burning cost method?

a.

A flat rate is applied to the gross premium income of the particular class of business.

b.

An estimate is made of premium to be collected by way of deposit and the rate of premium is agreed as a range.

c.

The reinsurer may quote a Flat Premium amount instead of a Flat Rate.

d.

The rate is calculated based on stress scenarios and recoupment of catastrophe loss.

Posted under IC85 Reinsurance Management

Answer: (b).An estimate is made of premium to be collected by way of deposit and the rate of premium is agreed as a range. Explanation:At the beginning of the treaty year an estimate is made of premium to be collected by way of deposit. The rate of premium is agreed as a range: minimum rate payable by reinsured and maximum rate chargeable by the reinsurer.

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Q. How is the rate of premium agreed upon in the burning cost method?
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