Question

Assume that Apex fire insurance has a surplus share treaty with Geneva Re. Apex has a retention limit of $300,000 for a single policy and that three lines ($900,000) are ceded to Geneva Re. Assume a $400,000 policy is issued. A $10,000 loss occurs. How much does Geneva Re. pay of that loss?

Answer 1

In a surplus share treaty, Geneva Re accepts a portion of Apex's risks and premium. Geneva Re will pay $22,500 of the $10,000 loss based on the ceded percentage of 225%.

Step-by-step explanation:

In a surplus share treaty, the reinsurer (Geneva Re) agrees to accept a portion of the insurance company's (Apex) risks in exchange for a portion of the premium and liability. In this case, Apex has a retention limit of $300,000 for a single policy, and they cede three lines ($900,000) to Geneva Re. When a $400,000 policy is issued and a $10,000 loss occurs, Geneva Re will pay a portion of the loss based on the ceded percentage.

To calculate how much Geneva Re will pay, we need to determine the ceded percentage. The ceded percentage is calculated by dividing the ceded premium by the total premium. In this case, the ceded premium is $900,000 and the total premium is $400,000, resulting in a ceded percentage of 225%.

To calculate the amount Geneva Re will pay for the $10,000 loss, we multiply the loss amount by the ceded percentage. Therefore, Geneva Re will pay $10,000 * 225% = $22,500 of the loss.