Skip to content

CMA Final · Risk Management in Banking and Insurance · Structure and Type of Re-insurance

Himalaya Insurance has an excess of loss treaty covering Rs 8 crore in excess of Rs 2 crore retention per risk, applied to each risk separately. Three risks suffer losses of Rs 1.5 crore, Rs 6 crore and Rs 12 crore. What is the total recovery from the reinsurer?

The total recovery is Rs 12 crore. Applied per risk, the Rs 1.5 crore loss yields nothing, the Rs 6 crore loss yields Rs 4 crore, and the Rs 12 crore loss is capped by the Rs 8 crore layer limit, giving Rs 8 crore.

  1. ARs 12 croreCorrect
  2. BRs 14 crore
  3. CRs 10.5 crore
  4. DRs 8 crore

Explanation

Per risk, the recovery equals loss above Rs 2 crore, capped at Rs 8 crore. Rs 1.5 crore loss gives 0. Rs 6 crore gives 4. Rs 12 crore gives 10 uncapped, within the Rs 8 crore limit, so 8. Total = 0 + 4 + 8 = Rs 12 crore. Rs 14 crore wrongly ignores the Rs 8 crore limit on the largest loss (0+4+10).

Did you get it right without looking?

One question tells you little. A timed set on Structure and Type of Re-insurance shows your real accuracy, how long you take and where you lose marks.

Practise Structure and Type of Re-insuranceFree diagnostic mock

More Structure and Type of Re-insurance questions