XYZ insurance company that accepts fire business up to a maximum sum insured of $500,000 considers the following excess of loss reinsurance programme, which is designed to limit its maximum liability per risk to $100,000. Risk excess cover of $400,000 in excess of $100,000 with premium adjustable at 15% of gross net premium income (GNPI). This cover has one reinstatement pro rata as to amount, payable at 30%.

Assume:

(1) XYZ insurance company's GNPI is $10 million and that its commission and expense ratios relative to the GNPI are 15% and 20%, respectively;

(2) no reinsurance commission paid for the cover.

(3) during the treaty year, the total claim amount to 3 million. Only two claims (i.e., $350,000 and $520,000) exceed the $100,000 deductible under the proposed risk excess of loss cover.

Calculate the total reinsurance premium and net profit of XYZ insurance company by utilizing this cover. Show all your work. (10 marks)