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).