Question: Insurers transfer (cede) risks to reinsurers two different ways, on a pro rata/proportional basis or an excess of loss/non-proportional basis. Suppose an insurer cedes

Insurers transfer (cede) risks to reinsurers two different ways, on a pro

Insurers transfer (cede) risks to reinsurers two different ways, on a pro rata/proportional basis or an excess of loss/non-proportional basis. Suppose an insurer cedes 70% of a $100,000 loss exposure via the pro rata method. Suppose, too, they received $4,000 in premiums to write the primary coverage. How much loss exposure would the reinsurer assume? How much premium for this policy would the reinsurer receive for assuming this risk? Now suppose a loss of $60,000 occurred. How much of that loss would the insurer pay? How much would the reinsurer pay?

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