hello, suppose there is an individual surplus reinsurance arrangement as follow: A cover in excess of £80,000 up to a maxmium of £600,000. Suppose there is a claim of £800,000, how much will this reinsurer pay? a) £800,000 - £600,000 - £800,00 ? b) £800,000 - £600,000?
As this is a surplus arrangement and the claim is of 800000, therefore the reinsurer will pay only 600000.(i.e. of 8,00,0000, reinsurere will not pay the first 80,000 and then for reinsurer the total claim becomes 720000. As reinsurer maximum limit is 600000, therefore reinsurer will pay only this amount.
The reinsurance you describe sounds like excess of loss (a non-proportional type of reinsurance). In this case the reinsurer pays £600,000 (the reinsurer covers all losses betwen £80,000 and 680,000). Individual surplus is a proportional form of reinsurance - the insurer and reinsurer share all claims in a fixed proportion and there is no upper limit. So if this was a term assurance with sum assured of £800,000 (notice that in life insurance the claim amount is always known) and the insurer had a retention of 80,000, then the insurer would pay 10% of the claim and the reinsurer would pay 90% of the claim. Best wishes Mark
