Page 174 - Reinsurance Management IC85

The Insurance Times

Q1. a)Distinguish between Fire Quota Share
Treaty and Surplus Treaty Reinsurances?

b) What are the advantages and
disadvantages of each ?

Ans: a) Quota share is an obligation on insurance company
to cede a fixed ratio of all their risks to the
reinsurance company with which it has a treaty
agreement.

If suppose the risk is for Rs.1,00,000 and the
insurance company agrees to retain 40% and
cede the rest, then insurance company retains
Rs.40,000 of the risk and reinsurance company
will have Rs.60,000 of the risk with it.

Premiums will also be shared in the same ratio,
i.e. 40% of the premium for reinsured and 60%
for reinsurer.

In surplus treaties the insurance company will
cede risks which are over a certain size. If
suppose the reinsured decides to retain Rs.25,000

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