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3/12 M97/February 2018 Reinsurance

Question answers

3.1 Any recoveries might protect the proportional treaty against hazardous risks and ensure that in the long-term
the price for renewal of the treaty would more likely be lower. The improved pricing would be implemented by
enhanced ceding commission or profit commission payable under the proportional treaty.
3.2 The insured recovers its valid claim of £7m. The facultative excess of loss reinsurer pays the full limit of £3m.
Insurer C bears the £3m retention plus the unreinsured £1m. C could have bought a further layer for an
amount in excess of £6m to pay for any failure in the EML calculation.
3.3 The calculation of the gross premium due to R is as follows: £50m @ 2‰ (per mille) = £100,000 for 100%.
3 R’s 10% share is £10,000.
Chapter 3.4 a. 25% of premium income needed.

Reinsurer E is prepared to accept a deductible of 12.5% and will require 50% of the original premium
b.
income for its participation. Reference copy for CII Face to Face Training