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5/22 M97/February 2018 Reinsurance
Finally, we can look at an example of a reinstatement premium calculation.
Example 5.16
Cover is £100,000 XS of £100,000 any one loss.
Minimum deposit premium £10,000 adjustable at a rate of 1% of gross net premium income, subject to one
reinstatement of 100% additional premium as to time and pro rata as to amount. This would be referred to on the slip
or cover note as ‘one full reinstatement at 100% a.p.’.
Gross income declared on expiry: £1.2m.
The cover was for the period 1 January 2016 to 31 December 2016.
Date of loss: 15 March 2016.
Amount of loss: £150,000 net from the ground.
Therefore, loss to cover £50,000 or 50% of limit of indemnity.
Initial reinstatement premium will be:
£50,000 × £10,000 £5,000 (50% of deposit premium)=
£100,000
However, when the deposit premium has been adjusted, the actual premium for the year is:
£1.2m × 1% = £12,000
5 Consequently reinstatement premiums should be:
Chapter £100,000 × £12,000 £6,000=
£50,000
An additional payment of reinstatement premium of £1,000 is required when the premium adjustment is calculated. Reference copy for CII Face to Face Training
