1. Posts in the subject areas are now being moderated. Please do not post any details about your exam for at least 3 working days. You may not see your post appear for a day or two. See the 'Forum help' thread entitled 'Using forums during exam period' for further information. Wishing you the best of luck with your exams.
    Dismiss Notice

Types of reinsurance arrangements

Discussion in 'SP2' started by Bharti Singla, Aug 28, 2021.

  1. Bharti Singla

    Bharti Singla Senior Member

    Ch-24, summary:
    It is mentioned that all the below types of reinsurance contracts may be on quota share or individual surplus basis.
    • Original terms
    • Level risk premium
    • Variable risk premium
    I understand that, for level and variable risk premium, the reinsurer sets premium rates and give it to the insurer based on age and gender, lets say. These rates may be same or variable policy vice. Now, there may be a retention limit in excess of which the reinsurer will pay the claim. Or the claim can be shared in fixed percentage between both insurer and reinsurer.

    Am I understanding it correctly?
    Also, for original term how it will work?
    It says that, premiums and benefits are proportionately shared in original term. Then how the retention limit will fit in this case, for individual surplus?
    I am assuming for quota share, the above mentioned percentage is same as defined in quota share arrangement.
     
    Bharti Singla, Aug 28, 2021
    #1
  2. Mark Willder

    Mark Willder ActEd Tutor Staff Member

    Hi Bharti

    That is all correct.

    For quota share on original terms the premiums and claims could be split as simply 70% to insurer 30% to reinsurer say.

    For individual surplus we would have a retention, say 80,000. If the sum assured is 100,000 then the insurer keeps 80% of the risk and so he reinsurer gets 20% of the premium and pays 20% of the claims. If the sum assured is 200,000 then the insurer keeps 40% of the risk and so he reinsurer gets 60% of the premium and pays 60% of the claims.

    Best wishes

    Mark
     
    Mark Willder, Aug 30, 2021
    #2
  3. Bharti Singla

    Bharti Singla Senior Member

    Okay, so based on retention limit, the proportion of claim and premium is derived.
    Got it, thanks Mark.
     
    Bharti Singla, Aug 30, 2021
    #3

Share This Page