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)?
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)
