Surplus Reinsurance

[Clint Tan]

How does surplus reinsurance base on sum insured works?

How does the min or max retention work if the retention is defined as max or min $x per line?

 

[Katherine Young]

It's not clear what you mean by "max or min $x per line" Clint, have you read that somewhere?

There's no change in method if it's based on sum insured, just use sum insured rather than EML when you're calculating the number of lines ceded.

 

[Clint Tan]

I read it under SP8.

It stated the reinsurance treaty has y number of line, and maximum retention of $x per line.

How does $x per line differs from the R or r that we usually see in the formula

 

[Katherine Young]

It's the "$x per line" that's causing the problem Clint, it's not a phrase that makes sense. I've also just searched our SP8 Course Notes and the phrase "per line" is never mentioned. Perhaps you are mis-remembering?

It sounds to me like you're a little hazy about how surplus reinsurance works. I recommend you have a go at Practice Questions 6.2, 6.5 and 6.15, which you can find at the end of the Chapter 6. They'll give you a really good grounding on how the minimum retention and maximum retention interacts with the number of lines ceded.

 

[Sherwin]

As to the word "maximum", for example, a property surplus reinsurance treaty may cover different types of property line businesses, including commercial buildings, chemical factories, etc. Usually, some types can use 100% of the maximum retention (say, 10m), but some special types such as chemical factories can only use, say 60% of the maximum retention (that is 6m). That is why the "maximum retention " rather than a simple "retention" is used in the wording.