REINSURANCE ARRANGEMENT

REINSURANCE
ARRANGEMENT
 REINSURANCE

Transfer Transfer Transfer

risk to risk to risk to

INSURANCE REINSURANCE RETROCESSION

 DID YOU KNOW?
IN REINSURANCE ARRANGEMENT,
INSURER ALSO KNOWN AS
Transfer RISK = RM5 MILL Able to retain= RM2 RM 3 MILL
MILL
FUNCTION OF REINSURANCE

share part of the

Make a
large losses with
huge claim
the reinsurer
FUNCTION OF REINSURANCE

Offer to insure risk with Can accept the risk,

huge sum insured more retained within their
than insurer capacity limit, transfer the
balance to reinsurer

With reinsurance
Eg: Sum Insured RM Insurer underwriting arrangement, can
2 million capacity only RM 1 million, transfer another RM1
therefore retain only RM 1 million to be covered by
million reinsurer
FUNCTION OF REINSURANCE

Transfer Transfer the risk

the risk to to reinsurer
FUNCTION OF REINSURANCE
TYPES OF REINSURANCE
AUTOMATIC PROPORTIONAL
REINSURANCE
TYPES OF AUTOMATIC PROPORTIONAL
REINSURANCE
 Maximum
Sum Insured
QUOTA SHARE TREATY Primary
insurer +
reinsurer
60% Quota Share (maximum
RM1,000,000 )
Gross Sum Insured Primary insurer Reinsurer Facultative
(RM) (40%) (60%) (other insurer
400,000 600,000 arrangement)
10,000 4,000 6,000 Nil

600,000 240,000 360,000 Nil

2,000,000 400,000 600,000 1,000,000

10,000,000 400,000 600,000 9,000,000

 Retention = RM500,000 The sum insured within
retention limit will be
SURPLUS TREATY
1st layer = 10 line surplus – reinsurance
retained by primary insurer

arrangement 1
2nd layer = 10 line surplus – reinsurance
arrangement 2
Gross Sum Primary insurer 1 First Surplus 2 10 line Facultative
Insured (RM) (retain: RM 10 line surplus Second Surplus
500,000) (RM500,000 x 10 (RM500,000 x 10
=RM5,000,000) =RM5,000,000)

100,000 100,000 Nil Nil Nil

700,000 500,000 200,000 Nil Nil
3,000,000 500,000 2,500,000 Nil Nil
8,000,000 500,000 5,000,000 2,500,000 Nil
12,000,000 500,000 5,000,000 5,000,000 1,500,000
 COMBINED QUOTA SHARE
AND SURPLUS TREATY
A reinsurance program is arranged as follow:
▪ First layer – 60% quota share (maximum RM1,800,000)
▪ Second layer – 4 line surplus

Based on the following, calculate the reinsurance allocations between the

cedant/insurer and reinsurer for the risks with the sum insured as shown
below.

i. RM20,000
ii. RM600,000
iii. RM4,000,000
 ANSWER FOR COMBINED QUOTA SHARE AND SURPLUS
TREATY
A reinsurance program is arranged as follow:
▪ First layer – 60% quota share (maximum RM1,800,000)
▪ Second layer – 4 line surplus

Based on the following, calculate the reinsurance allocations between the cedant/insurer and reinsurer for
the risks with the sum insured as shown below.

i. RM20,000
ii. RM600,000
iii. RM4,000,000

Sum Insured Insurer (40%) Reinsurer (60%) Surplus

(40% x (60% x (4XRM1,800,0000)
RM1,800,000) RM1,800,000) RM 7,200,000

Max retention RM720,000 RM 1,080,000 >1,800,000

RM20,000 RM8,000 RM12,000 Nil
RM600,000 RM240,000 RM360,000 Nil

RM4,000,000 RM720,000 RM1,080,000 RM2,200,000

RM5,000,000 ? ? ?

RM5,000,000 RM720,000 RM1,080,000 RM3,200,000

SEMI-AUTOMATIC
PROPORTIONAL REINSURANCE
Only ceding
company have
option to
reinsure or not
NON-AUTOMATIC
PROPORTIONAL REINSURANCE

Both ceding
company and
reinsurer have
option
END