proportional ri
1.) my understanding is that the 'pricing' of these proportional treaties is just reflected in the commission rates agreed, particularly the override commission, and profit commissions, so its reasonable to assume these would typically be more favourable for a reinsurer for a surplus treaty compared to a quota share. (However, I don't think this is discussed in ST7 notes, so, personally I wouldn't worry about it for the purposes of the ST7 exam). I suspect the underwriting controls may also be typically stricter for a surplus compared to a QS.
2.a) Risk 1: max retention: 100k, ceded 300k (3 lines to treaty A) => 25%/75% split of exposure and claims => claim of 240k would be split 60k(insurer)/180k reinsurer A
Risk 2: max retention: 100k, ceded 1,400k (14 lines: 9 to treaty A, 5 to treaty B) => split: 6.67% (insurer)/60% (reinsurer A)/33.33% (reinsurer B) => claim of £1m split in these proportions: 66.67k (insurer)/600k(reinsurer A)/333.33k (reinsurer B)
2.b) Risk 1: minimum retention will mean ceding 9 lines, so insurer keeping 10% => keep £24k of claims, insurer A takes the remaining £216k
(remember treaty B is not available if you don't keep the max retention)
Risk 2: see answer (a) for risk 2
Advantages of having second treaty:
so you can write bigger risks (without the problems associated with fac)
Last edited by a moderator: Mar 11, 2011