A rate for a risk ideally should reflect the hazards and exposures that the risk presents. Similarly the broader the coverage the higher the rate should be.
A rate is made up of:
Ø Pure Risk element (ie expected ‘working loss’ claims)
Ø Treaty reinsurance cost for Per Risk exposure (needed for the occasional high severity loss)
Ø Catastrophe reinsurance cost.
Ø Overheads (ie administration and charges).
Ø Intermediaries’ commission.
Ø Expected Profit.
Summarized from many sources
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