Exercise 13

The insurer operates under the obligatory reinsurance programme with the ceiling amount of 80 million. The programme combines in a hierarchical order three types of cover: Quota Share at the bottom, then Surplus and the Excess of Loss on the top. The Surplus secures retention left after Quota Share and the Excess of Loss secures retention left after the Surplus. Below are details on each type of cover:

1. Quota Share 40%
2. Surplus Z=3 million; L=4 lines of cover
3. 3 million XL over 15 million

Calculate the cedants share in the claim of 50 million from the policy with the insured sum of 50 million.

{Hint: Starting from initial retention of 50 million, calculate the retention after each cover. Assume that all 4 lines of cover have been used in Surplus. You should get final 15 million on the cedants account }