GIM8040 - Reinsurance and other forms of risk transfer: types of reinsurance: proportional reinsurance: quota share reinsurance example
A direct insurer writes the following contracts:
Policy |
Sum Insured £ |
Premium (100%) |
1 |
25,000 |
200 |
2 |
50,000 |
300 |
3 |
100,000 |
500 |
Under a 30% Quota Share reinsurance contract the following sums would be reinsured on each contract:
Policy |
Sum Insured £ |
Premium (100%) |
Sum reinsured £ |
Premium to Quota Share |
1 |
25,000 |
200 |
7,500 |
60 |
2 |
50,000 |
300 |
15,000 |
90 |
3 |
100,000 |
500 |
30,000 |
150 |
A claim of £12,000 on policy 1 would result in the reinsurer paying £3,600 (30% of £12,000).
A claim of £35,000 on policy 2 would result in the reinsurer paying £10,500 (30% of £35,000).
A claim of £60,000 on policy 3 would result in the reinsurer paying £18,000 (30% of £60,000).
