Practice 2 - All Treaties

Big Insurance Company (BIC) has a six-line surplus share reinsurance treaty with Large Reinsurance Company (LRC), with BIC retaining $100,000. BIC has a customer with a policy limit of $500,000 and a premium amount of $2,000. How much of the premium will go to LRC as part of the surplus share reinsurance treaty?

$1,600. Since the policy limit falls within the surplus share treaty amount, BIC would retain the first $100,000 and LRC would cover the next $400,000. Since LRC is covering 80% of the policy limit, then LRC would get 80% of the premium. 80% * $2,000 = $1,600

Westfork Mutual is a personal lines insurer. Based on its financial condition and regulatory requirements, Westfork Mutual has determined that the maximum amount of property insurance it can retain on homeowners policies is $200,000. The primary insurer would like to be able to participate in the marketplace of homes up to $1 million in value. Westfork Mutual decides to enter a surplus share treaty agreement with First Class Reinsurance. Which one of the following describes the appropriate reinsurance agreement?

A four-line surplus share treaty with a $200,000 line would be the appropriate reinsurance agreement. The $200,000 line represents the maximum amount that Westfork can retain, and the four-line surplus share treaty provides an additional $800,000 ($200,000 × 4). This agreement would give Westfork a total underwriting capacity of $1 million.

Retention setting factor

Co-participation provision

Per Occurrence XOL

The attachment point and the reinsurance limit apply to the total losses arising from a single event affecting one or more policies.

Industry Loss Warranty

an insurance-linked security that covers the primary insurer in the event that the industry-wide loss from a particular catastrophe exceeds a predetermined threshold.