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Help needed on question of Re-insurance

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Anurag Gupta

Service

45 Points Posted on 30 June 2021

Please see below the question on Re-insurance:

and here is the solution to it:

My main question is if at Step 3, the Cession for 1st Surplus Treaty is Rs. 24 lac then why in 4th Step, the cession amount is only Rs. 20 lac? Second: If the Max liability in 1st treaty is 25 lac then how we will know that out of this Re-insurer's share will be 24 lac and not 25 lac?

Replies (3)

Quick Summary

This discussion seeks clarification on a reinsurance calculation, specifically concerning a 1st Surplus Treaty. The user questions why the cession amount appears to change from Rs. 24 lac to Rs. 20 lac between steps, and how the reinsurer's share is determined when the maximum liability is higher. The provided solution details the breakdown of risk transfer and retention for a Rs. 70,00,000 risk, involving multiple cessions and facultative methods, but the user needs a clearer explanation of the specific figures used.

yasaswi gomes

My grammar is 💯 good I

5110 Points Posted on 30 June 2021

The company on the 4th risk insured 70,00,000₹ On total of two cessions. The insurer retained 2,00,000₹ risk from both the cessions and given 20,00,000₹ risk to reinsurer on first cession and 60,00,000₹ risk to reinsurer on second session. The insurer and reinsurer had another means to insure the 8,00,000 risk and they used facultative risk method.

Anurag Gupta

Service

45 Points Posted on 01 July 2021

That's what I want to understand is that why the 1st insurer assumed risk for Rs. 20,00,000/- and not Rs. 24,00,000/- as in 3rd case?

yasaswi gomes

My grammar is 💯 good I

5110 Points Posted on 01 July 2021

In the third case? The answer is correct. Whole risk transferred is 28, retained risk is 4 and transferred risk is 24 lakhs. Where does it say 20 lakhs?

in the question, the 4th risk is 25+45=70 lakhs. When they calculated, retained risk is 20 lakhs