Original Terms Reinsurance

[edcvfr]

Chapter 24 Page 2 of the CMP says that for original terms: "This method involves a sharing of all aspects of the original contract. Hence, the premium is split between the insurer and the reinsurer in a fixed proportion and any claim is split in that same proportion." - If the claim is split in that same proportion, how can we have original terms individual surplus reinsurance (as individual surplus is based on a retention limit rather than a proportion)?

 

[Anacts]

You just work backwards from the claim. If the retention of 50, say, means for an individual risk with SA 200 say, that the claim is split 50:150 then you also split the premium in that same proportion. The proportion will vary from risk to risk.

 

[edcvfr]

You just work backwards from the claim. If the retention of 50, say, means for an individual risk with SA 200 say, that the claim is split 50:150 then you also split the premium in that same proportion. The proportion will vary from risk to risk.

Ahh I see! Thanks! Please can you confirm that the below example is correct?

So say an insurer had the following 3 contracts:
1) SA = $1000, receives premium of X
2) SA = $5000, receives premium of Y
3) SA = $8000, receives premium of Z

Reinsurance A
Original Terms Quota Share - reinsures 40%
1) Reinsurer pays 400, receives premium of 0.4X
2) Reinsurer pays 2000, receives premium of 0.4Y
3) Reinsurer pays 3200, receives premium of 0.4Z

Reinsurance B
Original Terms Individual Surplus - retention limit of $3000
1) Reinsurer pays nothing, receives no premium
2) Reinsurer pays 2000, receives premium of 0.4Y (2000 / 5000 = 0.4)
3) Reinsurer pays 5000, receives premium of 0.625Z (5000 / 8000 = 0.625)

 

[Anacts]

Yep all correct (assuming a claim is made of course, and ignoring any commission payments)

 

[edcvfr]

Yep all correct (assuming a claim is made of course, and ignoring any commission payments)

Thanks!!!