Reinsurance can be used by an insurer to solve several problems. Assume you are an insurance consultant who is asked to give recommendations concerning the type of reinsurance plan or arrangement to use. For each of the following situations, indicate the type of reinsurance plan or arrangement that the ceding insurer should use, and explain the reasons for your answer.
a. Company A is an established insurer and is primarily interested in having protection against a catastrophic loss arising out of a single occurrence.
b. Company B is a rapidly growing new company and desires a plan of reinsurance that will reduce the drain on its surplus because of the expense of writing a large volume of new business.
c. Company C has received an application to write a $50 million life insurance policy on the life of the chief executive officer of a major corporation.
Before the policy is issued, the underwriter wants to make certain that adequate reinsurance is available.
d. Company D would like to increase its underwriting capacity to underwrite new business.