Reinsurance (Original Terms vs Risk Premium)

[scr123]

Original terms and risk premium reinsurance can both be written on individual surplus or quota share basis.
How?

Original terms - involves sharing all aspects of original contract.
This makes sense for quota share where the insurer and reinsurer share a different percentage of the same risks.
How do they share all aspects of the original contract on an individual surplus basis?

 

[Michal Piatra]

I would say retention limit under individual surplus can be converted into this percentage for each contract.
I think on policy level with SA=10,000, the 50% quota share and individual surplus with 5,000 retention limit on OT would essentially operate the same. If I'm not mistaken.

 

[Mark Willder]

I would say retention limit under individual surplus can be converted into this percentage for each contract.
I think on policy level with SA=10,000, the 50% quota share and individual surplus with 5,000 retention limit on OT would essentially operate the same. If I'm not mistaken.

Yes Michal, these two original terms contracts would be identical if the sum assured were 10,000. So the reinsurer would receive half the premiums and pay half the claims, so in this sense sharing all aspects of the contract.

If the sum assured was 20,000, then the quota share policy would pass on half of the risk to the reinsurer, but the individual surplus contract would pass on three quarters of the risk. So again all aspects of the contract are shared, only the proportions are different.

Best wishes

Mark