In principle, there are two basis in which reassurance is done
Risk Premium Basis as applied to Group Life:
- Provides cover solely for the death strain.
- The amount reassured each year is the original sum assured in excess of the ceding company’s retention less the reserves applicable to that policy.
- The risk premium rate for each year of reassurance increases with the age of the life reassured.
- The actual reassurance premium is the product of the risk premium rate for the age attained and the sum at risk for that year.
- Risk premiums are mostly used for individual life business
Original Term Basis
- Treaty is arranged on the same terms as the life office has with the policy holders.
- The reassurer receives a proportion of the premium paid to the ceding company and pays the same proportion of the claim.
- It attracts commission rate to relief the life office of its business acquisition costs.
- Original term is mostly used for group life business.
