Page 25 - Reinsurance Management IC85

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f. Useful for proportional retrocession treaties,
g. Useful for special classes of business.

Q. a. Explain how surplus treaties operate
with an example.

b. State their advantages and disadvantages.

a. Surplus treaties are based on "lines" - i.e., the
net retention amount of ceding company.
Example:
Maximum retention on any one risk Rs, 1,00,000/-

First surplus treaty: 10 lines with maximum Rs,
10,00,000/-

Second Surplus Treaty: 20 lines with maximum
Rs,20,00,000/-

Example Gross S.I. Retention 1st Surplus 2nd Surplus

cession cession

Rs. Rs. Rs. Rs.

i. 80,000 1,00,000 - -

ii. 15,00,000 1,00,000 10,00,000 4,00,000

iii. 31,00,000 1,00,000 10,00,000 20,00,000

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