Case Study – Cessioning Practice

Treaty Details

Reinsured:
“Ambitious Insurance Company Ltd” of Lagos, Nigeria

Treaty Name:
Fire, Engineering & Miscellaneous Accident Surplus Treaty 2013, effective 01.01.2013

Business Covered:
All insurances accepted or renewed by the Reinsured and classified as one of the following:
Fire & Allied Perils, Asset All Risks, Loss of Profits/Business Interruption, & Accidental Damage.
General & third party liabilities are excluded under Fire and Asset All risk policies. Mining Risks to be
ceded only after prior referral to Lead Reinsurer.
Also covered are: Engineering classes including Contractors All Risks, Machinery Breakdown,
Erection All Risks, Contractors Plant and Machinery, but excluding Advance Loss of Profits or Delay in
Start Up covers.
Other covered classes are Miscellaneous accident classes including Fidelity Guarantee, Burglary,
Money Insurances, Personal Accident/GPA, and Goods in Transit.

Gross Retention:
USD 5,000,000 Probable Maximum Loss any one risk for best class of risk (Material Damage &
Business Interruption combined), scaled down according to the attached table of gross retentions
which forms an integral part of the treaty.

Surplus Capacity:
15 lines each of max USD 5,000,000, subject to a limit of USD 75,000,000 any one risk for best class
of risk (Material Damage & Business Interruption combined), scaled down according to the attached
table of gross retentions which forms an integral part of the treaty. Amounts surplus on the treaty to be
reinsured on a proportional basis.
PML based cessions are subject to a Minimum PML of 50%, subject to an up-to-date survey report by
an experienced & competent surveyor, and are applicable only to risks with Sum insured greater than
USD 20,000,000. PML based cessions for Engineering business are prohibited. The Reinsured shall
be the sole judge as to what constitutes any one risk.

Third Party Liability section (Engineering only)

Third Party Liability under any CAR/EAR policy shall be reinsured in the same proportion as the
Material Damage or Contract Works section but Limited to a Maximum treaty cession of
USD15,000,000 any one accident.

Machinery Breakdown including Business Interruption and Deterioration of Stock Limits to be used in
combination.

Table of retentions
Class A: Maximum gross retention – 100% of gross line
- Office buildings, Soft drink manufacturing, residentials
Class B: Maximum gross retention – 75% of gross line
- Hotels, power plants, Chemical plants, electrical industry
Class C: Maximum gross retention – 60% of gross line
- Warehouses, explosives, paint and rubber, paper & leather, thatched buildings
Exclusion list:
Petro-chemical, Oil & Gas risks, Nuclear Facilities, Marine exposures, Motor insurances.

Page 1 of 7
Cessioning Practice - Instructions to Delegates

You are the Underwriter in Charge at “Ambitious Insurance Company Ltd” of Lagos, Nigeria.

1. Each Group to detail how you would cede each of the submitted risks to the Fire, Engineering
& Miscellaneous Accident Surplus Treaty 2013. Indicate clearly the amounts for the Retention,
Surplus treaty Cessions, and Facultative (if any).
2. Each Group to discuss what considerations were taken into account in arriving at the amounts
retained, ceded or placed Facultatively.
(Assume that all submitted risks incept within the 2013 treaty period and that all locations
covered fall within the territorial scope of the treaty)

Page 2 of 7
No, 1

Insured : AB Company Ltd.

Occupation: Commercial Warehousing activities

Policy Type: Fire & Allied Perils

Sums Insured:
PD: USD 473,000,000
BI: USD 25,000,000.
Contents PD *Contents Buildings PD *Buildings
Location SI PML SI PML Total PD SI
USD USD USD

Abuja 15,000,000.00 95% 100,000,000.00 50% 115,000,000.00

Lagos 180,000,000.00 48% 65,000,000.00 35% 245,000,000.00

Benin 55,000,000.00 85% 15,000,000.00 70% 70,000,000.00

Kanu 35,000,000.00 95% 8,000,000.00 70% 43,000,000.00

285,000,000.00 188,000,000.00 473,000,000.00

*PML percentages as determined from professional risk survey in January 2013.

No, 2

Insured : CD Company Ltd.

Occupation: Civil Engineering Contractors

Policy Type: Contractor’s All Risks & TPL

Contract Value: USD 75,000,000

 Phase 1 works: USD 15.000.000
 Phase 2 works: USD 50.000.000
 Phase 3 works: USD 10.000.000
TPL Limit: USD 10,000,000

100% Premium: USD 209,000

Location: Lagos

Page 3 of 7
No, 3

Insured : EF Company Ltd.

Occupation: Civil Engineering Contractors

Policy Type: Contractor’s All Risks & TPL

Contract Value: USD 75,000,000; Premium: 135,000

Advance Loss of Profit: USD 53,500,000; Premium: 85,000
TPL Limit: USD 35,000,000; Premium: 5,000

100% Premium: USD 225,000

Location: Lagos

No, 4

Insured : GH Company Ltd.

Occupation: Soda Manufacturing

Policy Type: Asset All Risks

Sums Insured:

PD: USD 84,000,000

BI: USD 36,000,000
Combined MD/BI Policy Limit of Indemnity: USD 80,000,000

PML: USD 95,000,000 as per latest 2013 survey report

No, 5

Insured : IJ Company Ltd.

Occupation: Resort & Hotel with Thatched roof villas

Policy Type: Fire & Allied Perils

Sums Insured:
BI /Loss of Profit: USD 20,000,000
Contents Buildings PD Buildings
Location Contents PD SI PML SI PML
USD USD
Abuja 35,000,000.00 Not available 55,000,000.00 Not available
Lagos 45,000,000.00 Not available 75,000,000.00 Not available

Page 4 of 7
No, 6

Insured : KH Company Ltd.

Occupation: Various Activities including Office Buildings, Warehousing, Soda Manufacturing,

Thatched Villa Hotel Resort, and residential buildings for rent

Policy Type: Asset All Risks and Business Interruption and General Third Party/Public Liability

Sums Insured:

General Third Party/Public Liability Limit : USD 30,000,000

*Contents *Buildings Business
Location Contents PD SI PML Buildings PD SI PML Interruption SI
USD USD USD
Office
buildings 3,000,000.00 95% 15,000,000.00 50% 5,000,000.00
Warehousing 150,000,000.00 Not known 2,000,000.00 Not known 45,000,000.00
Soda
Manufacturing 55,000,000.00 85% 5,000,000.00 70% 25,000,000.00
Thatched
Hotel Villas 10,000,000.00 Not known 45,000,000.00 Not known 20,000,000.00
Residential
Rental
buildings 3,000,000.00 70% 35,000,000.00 65% Nil
221,000,000.00 102,000,000.00 95,000,000.00
*PML percentages as determined from professional risk survey in January 2013.

No, 7

Insured : XYZ Company Ltd.

Occupation: Banking Activities for a Central Bank

Policy Type: Fidelity Guarantee

Limits of Indemnity:
Any one employee: USD 10,000,000
Collusion Limit: USD 25,000,000.

Premium: USD 150,000

No. Of employees: 157

Page 5 of 7
No, 8

Insured : XYZ Company Ltd.

Occupation: Financial Institution

Policy Type: Money Insurance

Limits of Indemnity:
Cash in Transit: USD 15,000,000
Cash on Premises: USD 50,000,000
Estimated Annual Carryings: USD 100,000,000

Premium
Cash in Transit: USD 150,000
Cash on Premises: USD 375,000
Estimated Annual Carryings: USD 25,000

No, 9

Insured : WZ Company Ltd.

Occupation: Contracting Company in the Mining Sector providing Transport Services for Supplies

Policy Type: Goods In Transit Insurance,

Policy Form: Annual Policy on declaration basis

Limits of Indemnity:
Any one Conveyance: USD 10,000,000
Estimated Annual Transits: USD 100,000,000

Premium
USD 100,000

Page 6 of 7
No, 10

Insured : PQ Company Ltd.

Occupation: Global Mining Company

Policy Type: Asset All Risks & BI

100% Premium: USD 426,250

Sums Insured:
Buildings PD
Location SI Los of Profit
USD USD
Underground
Mine 55,000,000.00 75,000,000

Admin offices 15,000,000.00 2,000,000

Residences
for Expat Staff 8,000,000.00 Nil
78,000,000.00 77,000,000

Page 7 of 7