What is the difference between excess of loss reinsurance and individual surplus reinsurance. The reinsured amount under both seems to be the excess of the benefit/claim over a predetermined retention limit. For excess of loss the definition states that the reinsurer pays any loss on an individual risk in excess of a predetermined retention. What is meant by individual risk? Could this be the different types of contracts offered by the insurer, for example endowment assurances would be one risk, term assurances another, and whole life contracts another individual risk. So if the Insurer has a retention limit of say 1million on the endowment assurances risk and claims from several endowment assurances policies came in, amounting to 5million, then the reinsurer would pay 4million. Would this be the case, is my understanding sound.
An individual risk is a single policy. For individual policies excess of loss and individual surplus are effectively the same in SP2 as the claim amount is fixed. For example, consider a policy with sum assured of 100. The insurer decides to retain 40% of the risk under an individual surplus agreement. This is exactly the same as an excess of loss agreement with an excess of 40. Your description sounds more like an aggregate excess of loss plan where the reinsurance is applied to a portfolio of business. So if we had ten claims for 500,000 each, then the insurer pays 1million and the reinsurer pays the 4million in excess of this. If we had another claim for 500,000 then the reinsurer would pay it all. This is different to individual surplus where the insurer pays a proportion of all claims. Best wishes Mark
There is no difference between the surplus reinsurances in CP1 and SP2. In both cases the reinsurer pays a proportion of the claim. This proportion will be larger for the larger sum assureds. Best wishes Mark
