REINSURANCE

ARRANGEMENT
REINSURANCE
ARRANGEMENT
 REINSURANCE

Transfer Transfer Transfer

risk to risk to risk to

INSURANCE REINSURANC RETROCESSIO

E N
 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 transfer another RM1
million, therefore retain million to be covered by
only RM 1 million reinsurer
FUNCTION OF REINSURANCE

Transfer Transfer the risk to

the risk to reinsurer
FUNCTION OF REINSURANCE
TYPES OF REINSURANCE
AUTOMATIC PROPORTIONAL
REINSURANCE
TYPES OF AUTOMATIC
PROPORTIONAL REINSURANCE
 QUOTA SHARE Maximum Sum
Insured Primary

TREATY insurer + reinsurer

60% Quota Share (maximum

RM1,000,000 )
Gross Sum Primary insurer Reinsurer Facultative
Insured (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

 The sum insured
within retention limit

SURPLUS TREATY will be retained by

primary insurer

Retention = RM500,000
1st layer = 10 line surplus – reinsurance 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