Q&A bank q1.12

Hi,

For claim 3, how do you work out the proportion of each claim to the Company, A and B? I understand that 15 lines are required in total but I don't understand why B has a lower share than A and why the company only has 1/16? Does the insurer always have 1 line?

Thanks

 

Hi,

The insurer always keeps the retained amount (the retention). In this case, that is £250,000. Each line will then also be £250,000 in size.

So an EML of £4,000,000 represents 16 lots of £250,000; the first of these will be the retention, with the remaining 15 being the ceded lines.

We are told that the treaties operate in the order given. So treaty B will only come into play if treaty A is insufficient for a particular EML. This was indeed the case for the risk relating to claim 3.

Therefore, of the 16 lots of £250,000, the first will be retained, A will take the next 10 and B will take the remaining 5. So the relative proportions will be 1/16, 10/16 and 5/6 respectively.

I hope this helps...

Coralie

 

Great that makes sense! Thanks Coralie!