Page 151 - Reinsurance Management IC85

Reinsurance Management

PML allows the insurer to consider its expected
exposure to theoretical one, and to adjust its
acceptance or retention accordingly.

Problem may arise when multiple risks are
insured under one risk and the insurer wants to
ascertain what the target risk with relation to PML
calculations is. Difficulty will also arise when
there is an error in PML calculations and results
in higher than expected losses.

From the same example we have considered
above the resultant damage was found out to be
Rs.80,000 then this will increase the reinsurers
liability than it would have been if the retention
was based on sum insured itself.

Had it been insured on sum insured basis the
reinsurer would have calculated his net liability
correctly and the insurer would accept less of
the risk on offer, in order to ensure that its actual
loss would not exceed its retention.

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