Page 164 - Fire Insurance Ebook IC 57

Fire and Consequential Loss Insurance

There are two types of Treaty reinsurance

a) Proportional and
b) Non-proportional

Proportional treaties

n Under proportional treaties the ceding company decides what
part of the original insurance it wishes to retain for its own account
and cedes the balance to the reinsurer.

n Premiums and losses are shared in the proportion that the ceding
company's retention and the reinsurers share bear to the sum
insured of the original insurance.

n The most common forms of proportional treaties are
(1) Quota Share treaty and (2) Surplus Treaty.

Quota share treaty

Under a quota share treaty, the ceding insurer is bound to cede and
the reinsurer bound to accept a fixed share of every risk coming within
the scope of the treaty.

The surplus treaty

n The purpose of this treaty is to reinsure the surplus of a risk
beyond the amount of the ceding insurer's retention.

n Upto what extent the surplus can be reinsured is determined by
the size of the treaty measured in terms of 'lines'.

n A 'line' is equal to the ceding insurer's net retention.
n Under a twenty line treaty reinsurance protection is made available

upto an amount equal to twenty times the retention of the ceding
insurer.

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