CMA Final · Risk Management in Banking and Insurance · Structure and Type of Re-insurance
A surplus treaty has a retention line of Rs 2 crore and the insurer cedes the excess over its retention to the reinsurer. For a risk with sum insured Rs 10 crore, a partial loss of Rs 3 crore occurs. What loss does the reinsurer bear?
The reinsurer bears Rs 2.4 crore. In a surplus treaty the ceded share is the sum insured above retention divided by the sum insured, here 8/10 or 80%. That proportion applies to the Rs 3 crore loss, giving Rs 2.4 crore. The cedant keeps Rs 0.6 crore.
- ARs 2.4 croreCorrect
- BRs 0.6 crore
- CRs 1.0 crore
- DRs 3.0 crore
Explanation
Ceded amount is 10 - 2 = Rs 8 crore, so the ceded proportion is 80%. The reinsurer bears 80% of the Rs 3 crore loss = Rs 2.4 crore. Rs 0.6 crore is the cedant's 20% share. Rs 1.0 crore wrongly treats this as a risk-excess layer.
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