Fund Life & Health Insurance

Question : Non-proportional Reinsurance Arrangements

Assume an insurance company (insurer C: ceding company) has written insurance coverage to a building, which worth 30 million dollars. To cover that business, insurer C has the following reinsurance arrangements:

First layer of reinsurance, $7 million in excess of $5 million will be covered by re-insurer A.

Another layer of $10 million will be covered by re-insurer B.

Everything that is residual will be covered by insurer C (the ceding company).

A. If there is a loss of $3 million, how much is each company paying? (Please note that even though some company may have $0 payout, you still need to point out that they are paying $0)

B. If there is a loss of $20 million, how much is each company paying?

C. What is the maximum amount each company could possibly pay?