UK: a method of calculating the premium in non-proportional reinsurance, in particular excess of loss and stop loss reinsurance, whereby the premium is directly related to the insured’s claims experience; the reinsurer reviews the cedant’s claims experience to ascertain what proportion of premium income would have been “burned up” by the reinsurance claims (see also Swing rated policies).
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REINSURANCE: A term most frequently used in spread loss property reinsurance to express pure loss cost or more specifically the ratio of incurred losses within a specified amount in excess of the ceding company’s retention to its gross premium over a stipulated number of years.
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UK: Premium calculation method used for non-proportional reinsurances mainly or large industrial liability risks. The premium is calculated from the percentage of premiums ‘burnt up’ by losses in the reinsurance layer or primary insurance over a number of previous years. The calculation is adjusted for inflation and other factors subject to change and the final figure is loaded, e.g. by 100/70, for administrative costs and profit. The premium is normally adjustable based on actual experience.