Page 179 - RISK Management IC 86

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Quota share is attractive to reinsurers as they can then
participate in all of the business the company writes,
but for the captive it will mean ceding premium on risks
it could even retain for its own account. Therefore,
working excess of loss covers, which enable a company
to retain a far higher proportion of its gross premium
income, is generally the favoured choice of the captive
companies.

The cost of reinsurance is always a factor to be
considered in fixing retention and acceptable limits, the
type and amount of reinsurance to be purchased.
Obviously the terms depend mainly on the profitability
of the underlying account.

Q3. (a) Distinguish between Pure Risks and
Speculative Risks.

Ans. Risks can be divided into two broad groups according
to the outcome of uncertain events. Pure risks are
those where the occurrence of the event results in
loss, but never has any possibility of gain. E.g, fire,
storm, accidental death or injury. Speculative risks
are those risks whose outcome may be either a loss
or a profit. E.g, business risks, gambling etc. Pure

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