Page 150 - Reinsurance Management IC85

The Insurance Times

Q1. a) What are the advantages and
disadvantages of PML underwriting.

b) How is reinsurance helpful to an
insurance company.

Ans: a) PML basis: is an estimate of maximum amount
of damage that would probably occur in the event
of an accident with reference to the actual sum
insured.

For example, consider a fire policy with a building
sum insured for Rs.100,000 with a retention of
Rs.75,000 based on sum insured basis. The
underwriter may access the building may be
divided into many different segments and the
PML from the higher target if totally destroyed
will result in a loss of Rs.60,000.

The underwriter can accept the loss and retain
the whole risk as the PML would be less than
the retention of the company. As a result the
insurer can retain the risk and thereby saving
reinsurance premium as a result. The concept of

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